PROSPECTUS SUPPLEMENT Filed Pursuant to
(To Prospectus dated April 16, 1998) Rule 424(b)(5)
File No. 333-26437
$400,000,000
FRANCHISE FINANCE CORPORATION OF AMERICA
MEDIUM-TERM NOTES DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
Franchise Finance Corporation of America (the "Company") may offer from
time to time up to $400,000,000 aggregate initial offering price of its
Medium-Term Notes Due Nine Months or More From Date of Issue (the "Notes"). Such
aggregate initial offering price is subject to reduction as a result of the sale
by the Company of other Securities described in the accompanying Prospectus.
Each Note will mature on any day nine months or more from the date of issue, as
specified in the applicable pricing supplement hereto (each, a "Pricing
Supplement"), and may be subject to redemption at the option of the Company or
repayment at the option of the holder thereof, in each case, in whole or in
part, prior to its Stated Maturity Date, as specified in the applicable Pricing
Supplement. The Notes will be issued in minimum denominations of $1,000 and
integral multiples thereof, unless otherwise specified in the applicable Pricing
Supplement.
The Company may issue Notes that bear interest at fixed rates ("Fixed
Rate Notes") or at floating rates ("Floating Rate Notes"). The applicable
Pricing Supplement will specify whether a Floating Rate Note is a Regular
Floating Rate Note, a Floating Rate/Fixed Rate Note or an Inverse Floating Rate
Note and whether the rate of interest thereon is determined by reference to one
or more of the CD Rate, the Commercial Paper Rate, the Eleventh District Cost of
Funds Rate, the Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate
(each, an "Interest Rate Basis"), or any other interest rate basis or formula,
as adjusted by any Spread and/or Spread Multiplier. Interest on each Floating
Rate Note will accrue from its date of issue and, unless otherwise specified in
the applicable Pricing Supplement, will be payable monthly, quarterly,
semiannually or annually in arrears, as specified in the applicable Pricing
Supplement, and at Maturity. Unless otherwise specified in the applicable
Pricing Supplement, the rate of interest on each Floating Rate Note will be
reset daily, weekly, monthly, quarterly, semiannually or annually, as specified
in the applicable Pricing Supplement. Interest on each Fixed Rate Note will
accrue from its date of issue and, unless otherwise specified in the applicable
Pricing Supplement, will be payable semiannually in arrears on May 30 and
November 30 of each year and at Maturity. The Company may also issue Discount
Notes, Indexed Notes and Amortizing Notes. See "DESCRIPTION OF NOTES."
The interest rate, or formula for the determination of the interest
rate, if any, applicable to each Note and the other variable terms thereof will
be established by the Company on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formulas and
other terms of Notes are subject to change by the Company, but no such change
will affect any Note previously issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (or such other depository
identified in the applicable Pricing Supplement) (the "Depositary"), and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
See "RISK FACTORS" commencing on page S-3 for a discussion of certain
risks that should be considered in connection with an investment in the Notes
offered hereby. If applicable, additional Risk Factors will be set forth in a
related Pricing Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR
ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Agents' Discounts Proceeds to
Price to Public(1)(2) and Commissions(2)(3) Company(2)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........................... 100% .125-.750% 99.875-99.250%
- ------------------------------------------------------------------------------------------------------------------------------------
Total.............................. $400,000,000 $500,000-$3,000,000 $399,500,000-397,000,000
====================================================================================================================================
</TABLE>
(1) Unless otherwise specified in an applicable Pricing Supplement, the Notes
will be issued at 100% of their principal amount.
(2) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc Montgomery
Securities LLC, Salomon Brothers Inc and UBS Securities LLC (each, an "Agent"
and together, the "Agents"), individually or in a syndicate, may purchase Notes,
as principal, from the Company, for resale to investors and other purchasers at
varying prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent or, if so specified in the applicable Pricing
Supplement, for resale at a fixed offering price. Unless otherwise specified in
the applicable Pricing Supplement, any Note sold to an Agent as principal will
be purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of identical
maturity. If agreed to by the Company and an Agent, such Agent may use its
reasonable efforts on an agency basis to solicit offers to purchase the Notes at
100% of the principal amount thereof, unless otherwise specified in the
applicable Pricing Supplement. The Company will pay a commission to an Agent,
ranging from .125% to .750% of the principal amount of a Note, depending upon
its stated maturity, sold through an Agent. Commissions with respect to Notes
with stated maturities in excess of 30 years that are sold through an Agent will
be negotiated between the Company and such Agent at the time of such sale. See
"PLAN OF DISTRIBUTION."
(3) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "PLAN OF DISTRIBUTION."
(4) Before deducting expenses payable by the Company estimated at $300,000.
The Notes are being offered on a continuous basis by the Company to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange. There is
not assurance that the Notes offered hereby will be sold or, if sold, that there
will be a secondary market for the Notes or liquidity in the secondary market if
one develops. The Company reserves the right to cancel or modify the offer made
hereby without notice. The Company or an Agent, if it solicits the offer on an
agency basis, may reject any offer to purchase Notes in whole or in part. See
"PLAN OF DISTRIBUTION."
<TABLE>
<S> <C> <C>
Merrill Lynch & Co. Donaldson, Lufkin & Jenrette
NationsBanc Montgomery Securities LLC Salomon Smith Barney Securities Corporation
UBS Securities
</TABLE>
The date of this Prospectus Supplement is April 16, 1998.
<PAGE>
Certain persons participating in an offering of Notes may engage in
transactions that stabilize, maintain or otherwise affect the price of such
Notes, including over-allotment, stabilizing and short-covering transactions in
such Notes, and the imposition of a penalty bid, in connection with the
offering. For a description of those activities, see "Plan of Distribution."
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING, AND PROSPECTIVE INVESTORS ARE
URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL TO
OBTAIN MATERIAL INFORMATION CONCERNING THE NOTES.
S-2
<PAGE>
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes, whether resulting from such Notes being denominated or
payable in or determined by reference to one or more interest rate, currency or
other indices or formulas, or otherwise. The Company and the Agents disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of the Prospectus Supplement or as they change from time to time.
Prospective investors should consult their own financial and legal advisors as
to the risks entailed by an investment in such Notes and the suitability of
investing in such Notes in light of their particular circumstances. Such Notes
are not an appropriate investment for investors who are unsophisticated with
respect to transactions involving the applicable interest rate or current index
or other indices or formulas. Prospective investors should carefully consider,
among other factors, the matters described below.
Structure Risks
An investment in Notes indexed, as to principal, premium, if any,
and/or interest, if any, to one or more interest rate, currency (including
exchange rates and swap indices between currencies or composite currencies), or
other indices or formulas, either directly or inversely, entails significant
risks that are not associated with similar investments in a conventional fixed
rate or floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant changes,
that no interest will be payable in respect of such Notes or will be payable at
a rate lower than one applicable to a conventional fixed rate or floating rate
debt security issued by the Company at the same time, that repayment of the
principal and/or premium, if any, in respect of such Notes may occur at times
other than that expected by the holders thereof (the "Holders") and that the
Holders could lose all or a substantial portion of principal and/or premium, if
any, payable with respect to such Notes at Maturity (as defined under
"DESCRIPTION OF NOTES-General"). Such risks depend on a number of interrelated
factors, including economic, financial and political events, over which the
Company has no control. Additionally, if the formula used to determine the
amount of principal, premium, if any, and/or interest, if any, payable with
respect to such Notes contains a multiplier or leverage factor, the effect of
any change in the applicable index or indices or formula or formulas will be
magnified. In recent years, values of certain indices and formulas have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in the value of any particular index or formula that have occurred
in the past are not necessarily indicative, however, of fluctuations that may
occur in the future.
Any optional redemption feature of Notes might affect the market value
of such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, Holders generally will not be able
to reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the current interest rate on such Notes for the
equivalent time to the Stated Maturity.
S-3
<PAGE>
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the liquidity
of the secondary market if one develops. See "PLAN OF DISTRIBUTION."
The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity and
volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of such
Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect the
market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Holders may not be able to sell such Notes readily or at prices
that will enable them to realize their anticipated yield. No investor should
purchase Notes unless such investor understands and is able to bear the risk
that such Notes may not be readily saleable, that the value of such Notes will
fluctuate over time and that such fluctuations may be significant.
Credit Ratings
The credit ratings assigned to the Company's medium-term note program
may not reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in light
of their particular circumstances.
THE COMPANY
The Company is a specialty retail finance company dedicated primarily
to providing real estate financing to the chain restaurant industry, as well as
to the convenience store and automotive parts and service industries. The
Company's primary strategy is to provide all necessary financing for multi-unit
operators and franchisors who own retail properties in which the Company
invests. The Company's investments are diversified by geographic region,
operator, chain and industry. The Company's Common Stock trades on the New York
Stock Exchange (the "NYSE") under the symbol FFA. The Company is a Delaware
corporation and maintains its corporate offices at 17207 North Perimeter Drive,
Scottsdale, Arizona 85255 and its telephone number is (602) 585-4500.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description
S-4
<PAGE>
reference is hereby made. Unless different terms or additional terms are
specified in the applicable Pricing Supplement, capitalized terms used but not
defined herein shall have the respective meanings given to them in the
accompanying Prospectus, the Notes or the Indenture, as the case may be.
References to interest payments and interest related information do not apply to
original issue discount Notes that do not pay interest.
The Notes will be issued as a series of Debt Securities under an
Indenture, dated as of November 21, 1995, as amended or modified from time to
time (the "Indenture"), between the Company and Norwest Bank Arizona, National
Association, as trustee (the "Trustee"). The Trustee serves as the trustee with
respect to the Company's 7% Senior Notes due 2000, 7-7/8% Senior Notes due 2005,
and the Medium-Term Notes due Nine Months or More From Date of Issue, all of
which were issued under the Indenture. The Indenture is subject to, and governed
by, the Trust Indenture Act of 1939, as amended. The following summary of
certain provisions of the Notes and the Indenture does not purport to be
complete and is qualified in its entirety by reference to the actual provisions
of the Notes and the Indenture. Capitalized terms used but not defined herein
shall have the meanings given to them in the accompanying Prospectus, the Notes
or the Indenture, as the case may be. The term "Debt Securities," as used in
this Prospectus Supplement, refers to all debt securities, including the Notes,
issued and issuable from time to time under the Indenture. The following
description of the Notes will apply to each Note offered hereby unless otherwise
specified in the applicable Pricing Supplement.
General
The Notes will be unsecured general obligations of the Company and will
rank pari passu with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Indenture does not limit the
principal amount of Debt Securities that may be issued thereunder and Debt
Securities may be issued thereunder from time to time in one or more series up
to the aggregate initial offering price from time to time authorized by the
Company for each series. As of the date of this Prospectus Supplement, the
Company has issued and has outstanding $327,150,000 aggregate principal amount
of Debt Securities. The Company may, from time to time, without the consent of
the Holders of the Notes, provide for the issuance of Notes or other Debt
Securities under the Indenture in addition to the $400,000,000 aggregate initial
offering price of Notes offered hereby or other Debt Securities previously
issued under the Indenture.
The Notes are currently limited to up to $400,000,000 aggregate initial
offering price. Such aggregate initial offering price is subject to reduction as
a result of the sale by the Company of other securities described in the
accompanying Prospectus. Each Note will mature on any day nine months or more
from its date of issue (the "Stated Maturity Date"), as specified in the
applicable Pricing Supplement, unless the principal thereof (or an installment
of principal thereof) becomes due and payable prior to the Stated Maturity Date,
whether by the declaration of acceleration of maturity, notice of redemption at
the option of the Company, notice of the Holder's option to elect repayment or
otherwise (the Stated Maturity Date or such prior date, as the case may be, is
herein referred to as the "Maturity" with respect to the principal repayable
S-5
<PAGE>
on such date). Unless otherwise specified in the applicable Pricing Supplement,
interest-bearing Notes will either be Fixed Rate Notes or Floating Rate Notes,
as specified in the applicable Pricing Supplement. The Company may also issue
Discount Notes, Indexed Notes and Amortizing Notes (as such terms are
hereinafter defined).
Unless otherwise specified in the applicable Pricing Supplement, the
Notes will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, U.S. dollars. References herein to "United
States dollars," "U.S. dollars" or "$" are to the lawful currency of the United
States of America (the "United States"). Unless otherwise specified in the
applicable Pricing Supplement, purchasers are required to pay for the Notes in
U.S. dollars.
Interest rates offered by the Company with respect to the Notes may
differ depending upon, among other factors, the aggregate principal amount of
Notes purchased in any single transaction. Notes with different variable terms
other than interest rates may also be offered concurrently to different
investors. Interest rates or formulas and other terms of Notes are subject to
change by the Company from time to time, but no such change will affect any Note
previously issued or as to which an offer to purchase has been accepted by the
Company.
Each Note will be issued as a Book-Entry Note represented by one or
more fully registered Global Securities or as a fully registered Certificated
Note. The minimum denominations of each Note will be $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement.
Payments of principal of, and premium, if any, and interest, if any,
on, Book-Entry Notes will be made by the Company through the Trustee to the
Depositary. See "-Book-Entry Notes." In the case of Certificated Notes, payment
of principal and premium, if any, due at Maturity will be made in immediately
available funds upon presentation and surrender thereof (and, in the case of any
repayment on an Optional Repayment Date, upon submission of a duly completed
election form in accordance with the provisions described below) at the office
or agency maintained by the Company for such purpose in the Borough of
Manhattan, the City of New York, currently the corporate trust office of the
Trustee located at Norwest Trust Company New York, 3 New York Plaza, 15th Floor,
New York, New York 10004. Payment of interest, if any, due on Maturity of each
Certificated Note will be made to the person to whom payment of the principal
and premium, if any, shall be made. Payment of interest, if any, due on each
Certificated Note on any Interest Payment Date (as hereinafter defined) other
than at Maturity will be made by check mailed to the address of the Holder
entitled thereto as such address shall appear in the Security Register of the
Company. Notwithstanding the foregoing, a Holder of $10,000,000 or more in
aggregate principal amount of Certificated Notes (whether having identical or
different terms and provisions) will be entitled to receive interest payments,
if any, on any Interest Payment Date other than at Maturity by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 days prior to such Interest
Payment Date. Any such wire transfer instructions received by the Trustee shall
remain in effect until revoked by such Holder.
S-6
<PAGE>
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day. "London Business Day" means a day on which dealings in the Designated LIBOR
Currency (as hereinafter defined) are transacted in the London interbank market.
"Principal Financial Center" means the capital city of the country to
which the Designated LIBOR Currency, if applicable, relates (or in the case of
European Currency Units ("ECU"), Luxembourg), except, in each case, that with
respect to U.S. dollars, Australian dollars, Canadian dollars, Deutsche marks,
Dutch gulltiers, Italian lire and Swiss francs, the Principal Financial Center
shall be the City of New York, Sydney, Frankfurt, Amsterdam, Milan and Zurich,
respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "-Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, the City of New York,
currently the corporate trust office of the Trustee located at Norwest Trust
Company New York, 3 New York Plaza, 15th Floor, New York, New York 10004. No
service charge will be made by the Company or the Trustee for any such
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith (other than exchanges pursuant to the
Indenture not involving any transfer).
Reference is made to the section titled "DESCRIPTION OF DEBT
SECURITIES- Certain Covenants" in the accompanying Prospectus and "DESCRIPTION
OF NOTES- Additional Covenants of the Company" below for a description of the
covenants applicable to the Notes. Compliance with such covenants generally may
not be waived by the Trustee unless the holders of at least a majority in
principal amount of each series of outstanding Notes consent to such waiver with
respect to such series: provided, however, that the defeasance and covenant
defeasance provisions of the Indenture described under "DESCRIPTION OF DEBT
SECURITIES-Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus will apply to the Notes. The Company and the Trustee may amend the
terms of the covenants set forth below under "ADDITIONAL COVENANTS OF THE
COMPANY" with the written consent of the Holders of not less than a majority in
principal amount of the outstanding Notes.
Redemption at the Option of the Company
Unless otherwise specified in the applicable Pricing Supplement, the
Notes will not be subject to any sinking fund. The Notes will be redeemable at
the option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the
S-7
<PAGE>
Company on any date on and after the applicable Initial Redemption Date in whole
or from time to time in part in increments of $1,000 or such other minimum
denomination specified in such Pricing Supplement (provided that any remaining
principal amount thereof shall be at least $1,000 or such minimum denomination),
at the applicable Redemption Price (as hereinafter defined), together with
unpaid interest accrued to the date of redemption, on notice given not more than
60 nor less than 30 calendar days prior to the date of redemption and in
accordance with the provisions of the Indenture. "Redemption Price," with
respect to a Note, means an amount equal to the Initial Redemption Percentage
specified in the applicable Pricing Supplement (as adjusted by the Annual
Redemption Percentage Reduction, if applicable) multiplied by the unpaid
principal amount to be redeemed. The Initial Redemption Percentage, if any,
applicable to a Note shall decline at each anniversary of the Initial Redemption
Date by an amount equal to the applicable Annual Redemption Percentage
Reduction, if any, until the Redemption Price is equal to 100% of the unpaid
principal amount to be redeemed. See also "DISCOUNT NOTES."
Repayment at the Option of the Holder
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued to the date of repayment. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders) not
more than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. See also
"DISCOUNT NOTES."
Only the Depositary may exercise a repayment option in respect of
Global Securities representing Book-Entry Notes. Accordingly, Beneficial Owners
(as hereinafter defined) of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities repaid
must instruct the Participant (as hereinafter defined) through which they own
their interest to direct the Depositary to exercise the repayment option on
their behalf by delivering the related Global Security and duly completed
election form to the Trustee as aforesaid. In order to ensure that such Global
Security and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants from
Beneficial Owners of Global Securities relating to an option to elect repayment
S-8
<PAGE>
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "-Book-Entry Notes."
If applicable, the Company will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder, and any other securities laws or
regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in
the open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
Additional Covenants of the Company
Reference is made to the section titled "Description of Debt
Securities" in the accompanying Prospectus for a description of the covenants
applicable to the Notes. In addition to the foregoing, the following covenants
of the Company will apply to the Notes for the benefit of the Holders of the
Notes:
Limitation on Incurrence of Total Debt. The Company will not, and will
not permit any Subsidiary (as defined below) to, incur any Debt (as defined
below) if, immediately after giving effect to the incurrence of such additional
Debt and the application of the proceeds therefrom, the aggregate principal
amount of all outstanding Debt of the Company and its Subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles is greater than 60% of the sum of (a) the Company's Total Assets (as
defined below) as of the end of the calendar quarter prior to the incurrence of
such additional Debt and (b) the increase in Total Assets from the end of such
quarter including, without limitation, any increase in Total Assets caused by
the incurrence of such additional Debt.
Limitation on Incurrence of Secured Debt. In addition to the foregoing
limitation on the incurrence of Debt, the Company will not, and will not permit
any Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge,
encumbrance or security interest of any kind on any of its properties, and will
not otherwise grant or convey any such mortgage, charge, pledge, encumbrance or
security interest of any kind, if immediately after giving effect thereto, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles which is secured by any mortgage, charge, pledge,
encumbrance or security interest of any kind on property of the Company or any
Subsidiary is greater than 40% of the sum of (a) the Company's Total Assets as
of the end of the calendar quarter prior to the incurrence of such Debt, and (b)
any increase in Total Assets from the end of such quarter including, without
limitation, any increase in Total Assets caused by the incurrence of such
additional Debt.
S-9
<PAGE>
Debt Service Coverage. In addition to the foregoing limitations on the
incurrence of Debt, the Company will not, and will not permit any Subsidiary to,
incur any Debt if the ratio of Consolidated Income Available for Debt Service
(as defined below) to Annual Service Charge (as defined below) for the four
consecutive calendar quarters most recently ended prior to the date on which
such additional Debt is to be incurred is less than 1.5 to 1.0 on a pro forma
basis after giving effect to the incurrence of such Debt and the application of
the proceeds therefrom.
Maintenance of Total Unencumbered Assets. The Company will maintain at
all times Total Unencumbered Assets (as defined below) of not less than 150% of
the aggregate outstanding principal amount of all outstanding unsecured Debt of
the Company and its Subsidiaries.
As used herein:
"Annual Service Charge" means the interest expense of the Company and
its Subsidiaries for the four consecutive fiscal quarters most recently ended,
including, without limitation, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, net
costs pursuant to hedging obligations, the interest component of all payments
associated with Capitalized Leases, amortization of debt issuance costs,
amortization of original issue discount, non-cash interest payments and the
interest component of any deferred payment obligations.
"Capitalized Lease" means any lease of property by the Company or any
Subsidiary as lessee that is reflected on the Company's consolidated balance
sheet as a capitalized lease in accordance with generally accepted accounting
principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted, and minus amounts which have been added,
for (a) interest on Debt of the Company and its Subsidiaries, (b) provision for
taxes of the Company and its Subsidiaries based on income, (c) amortization of
debt discount, (d) provisions for gains and losses on properties, (e)
depreciation, (f) the effect of any non-cash charge resulting from a change in
accounting principles in determining Consolidated Net Income for such period and
(g) amortization of deferred charges.
"Consolidated Net Income" for any period means the amount of
consolidated net income (or loss) of the Company and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Debt" means any indebtedness of the Company or any Subsidiary, whether
or not contingent, in respect of (a) borrowed money or evidenced by bonds,
notes, debentures or similar instruments, (b) indebtedness secured by any
mortgage, pledge, lien, charge, encumbrance or any security interest existing on
property owned by the Company or any Subsidiary, (c) letters of credit or
amounts representing the balance deferred and unpaid of the
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purchase price of any property except any such balance that constitutes an
accrued expense or trade payable or (d) Capitalized Leases, in the case of items
of indebtedness under (a) through (c) above to the extent that any such items
(other than letters of credit) would appear as liabilities on the Company's
consolidated balance sheet in accordance with generally accepted accounting
principles, and also includes, to the extent not otherwise included, any
obligation by the Company or any Subsidiary to be liable for, or to pay, as
obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another person (other than the
Company or any Subsidiary) (it being understood that Debt shall be deemed to be
incurred by the Company or any Subsidiary, whenever the Company or such
Subsidiary shall create, assume, guarantee or otherwise become liable in respect
thereof).
"Subsidiary" means (a) any corporation, association, joint venture or
other business entity of which more than 50% of the total voting power of shares
of stock or other ownership interests entitled to vote in the election of the
directors, managers, trustees or other persons having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by the Company or one or more of the
other Subsidiaries of the Company, and (b) any partnership or limited liability
company in which the Company or one or more of the other Subsidiaries of the
Company, directly or indirectly, possesses more than a 50% interest in the total
capital or total income of such partnership or limited liability company.
"Total Assets" as of any date means the sum of (a) Undepreciated Real
Estate Assets and (b) all other assets of the Company and its Subsidiaries
determined in accordance with generally accepted accounting principles (but
excluding accounts receivable and intangibles).
"Total Unencumbered Assets" means Total Assets minus the value of any
properties of the Company and its Subsidiaries that are encumbered by any
mortgage, charge, pledge, lien, security interest or other encumbrance of any
kind, including the value of any stock of any Subsidiary that is so encumbered.
For purposes of this definition, the value of each property shall be equal to
the purchase price or cost of each such property, and the value of any stock
subject to any encumbrance shall be determined by reference to the value of the
properties owned by the issuer of such stock as aforesaid.
"Undepreciated Real Estate Assets" as of any date means the amount of
real estate assets of the Company and its Subsidiaries on such date, before
depreciation and amortization determined on a consolidated basis in accordance
with generally accepted accounting principles.
Interest
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case
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as specified in the applicable Pricing Supplement, until the principal thereof
is paid or duly made available for payment. Unless otherwise specified in the
applicable Pricing Supplement, interest payments in respect of Fixed Rate Notes
and Floating Rate Notes will be made in an amount equal to the interest accrued
from and including the immediately preceding Interest Payment Date in respect of
which interest has been paid or duly made available for payment (or from and
including the date of issue, if no interest has been paid or duly made available
for payment) to but excluding the applicable Interest Payment Date or the date
of Maturity, as the case may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as hereinafter defined)
and the related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified in the applicable Pricing
Supplement, a "Record Date" shall be the fifteenth calendar day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement,
interest on Fixed Rate Notes will be payable on May 30 and November 30 of each
year (each, an "Interest Payment Date") and at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, interest on Fixed Rate Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or Maturity of a Fixed Rate Note falls on
a day that is not a Business Day, the required payment of principal, premium, if
any, and/or interest will be made on the next succeeding Business Day as if made
on the date such payment was due, and no interest will accrue on such payment
for the period from and after such Interest Payment Date or Maturity, as the
case may be, to the date of such payment on the next succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (a) the CD Rate, (b) the CMT Rate, (c) the Commercial Paper Rate,
(d) The Eleventh District Cost of Funds Rate, (e) the Federal Funds Rate, (f)
LIBOR, (g) the Prime Rate, (h) the Treasury Rate, or (i) such other Interest
Rate Basis or interest rate formula as may be specified in the applicable
Pricing Supplement. The applicable Pricing Supplement will specify certain terms
with respect to which each Floating Rate Note is being delivered, including:
whether such Floating Rate Note is a "Regular Floating Rate Note," a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," the Fixed Rate
Commencement Date, if applicable, Fixed Interest Rate,
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if applicable, Interest Rate Basis or Bases, Initial Interest Rate, if any,
Initial Interest Reset Date, Interest Reset Dates, Interest Payment Dates, Index
Maturity, Maximum Interest Rate and/or Minimum Interest Rate, if any, and Spread
and/or Spread Multiplier, if any, as such terms are defined below. If one or
more of the applicable Interest Rate Bases is LIBOR or the CMT Rate, the
applicable Pricing Supplement will also specify the Designated LIBOR Currency
and Designated LIBOR Page or the Designated CMT Maturity Index and Designated
CMT Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined
as follows:
(a) Unless such Floating Rate Note is designated as a
"Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or
as having an Addendum attached or having "Other/Additional Provisions"
apply, in each case relating to a different interest rate formula, such
Floating Rate Note will be designated as a "Regular Floating Rate
Note", and except as described below or in the applicable Pricing
Supplement, will bear interest at the rate determined by reference to
the applicable Interest Rate Basis or Bases (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable
Spread Multiplier, if any. Commencing on the Initial Interest Reset
Date, the rate at which interest on such Regular Floating Rate Note
shall be payable shall be reset as of each Interest Reset Date;
provided, however, that the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be
the Initial Interest Rate.
(b) If such Floating Rate is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the
applicable Pricing Supplement, such Floating Rate Note will bear
interest at the rate determined by reference to the applicable Interest
Rate Basis or Bases (i) plus or minus the applicable Spread, if any,
and/or (ii) multiplied by the applicable Spread Multiplier, if any.
Commencing on the Initial Interest Reset Date, the rate at which
interest on such Floating Rate/Fixed Rate Note shall be payable shall
be reset as of each Interest Reset Date; provided, however, that (A)
the interest rate in effect for the period, if any, from the date of
issue to the Initial Interest Reset Date will be the Initial Interest
Rate and (B) the interest rate in effect for the period commencing on
the Fixed Rate Commencement Date to Maturity shall be the Fixed
Interest Rate, if such rate is specified in the applicable Pricing
Supplement or, if no such Fixed Interest Rate is specified, the
interest rate in effect thereon on the day immediately preceding the
Fixed Rate Commencement Date.
(c) If such Floating Rate Note is designated as an "Inverse
Floating Rate Note," then, except as described below or in the
applicable Pricing Supplement, such Floating Rate Note will bear
interest at the Fixed Interest Rate minus the rate determined by
reference to the applicable Interest Rate Basis or Bases (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any; provided, however, that, unless
otherwise specified in the applicable Pricing Supplement, the interest
rate thereon will not be less than zero. Commencing on the
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Initial Interest Reset Date, the rate at which interest on such Inverse
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset
Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (a) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as hereinafter defined) immediately Preceding
such Interest Reset Date or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
The applicable Pricing Supplement will specify whether the rate of
interest on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (a) daily, each Business Day; (b) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (c) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(d) quarterly, the third Wednesday of March, June, September and December of
each year; (e) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (f) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided, however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Business Day, such Interest Reset Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day.
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The interest rate applicable to each Interest Reset Period commencing
on the related Interest Reset Date will be the rate determined by the
Calculation Agent as of the applicable Interest Determination Date and
calculated on or prior to the Calculation Date (as hereinafter defined), except
with respect to LIBOR and the Eleventh District Cost of Funds Rate, which will
be calculated on such Interest Determination Date. The "Interest Determination
Date" with respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the
Federal Funds Rate and the Prime Rate will be the second Business Day
immediately preceding the applicable Interest Reset Date; the "Interest
Determination Date" with respect to the Eleventh District Cost of Funds Rate
will be the last working day of the month immediately preceding the applicable
Interest Reset Date on which the Federal Home Loan Bank of San Francisco (the
"FHLB of San Francisco") publishes the Index (as hereinafter defined); and the
"Interest Determination Date" with respect to LIBOR will be the second London
Business Day immediately preceding the applicable Interest Reset Date, unless
the Designated LIBOR Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the "Interest Determination Date" will be the day
in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as hereinafter defined) are normally auctioned (Treasury Bills
are normally sold at an auction held on Monday of each week, unless that day is
a legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the "Interest Determination Date"
will be such preceding Friday; provided, further, that if the Interest
Determination Date would otherwise fall on an Interest Reset Date, the Interest
Determination Date will be postponed to the next succeeding Business Day. The
"Interest Determination Date" pertaining to a Floating Rate Note the interest
rate of which is determined by reference to two or more Interest Rate Bases will
be the most recent Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be determined
as of such date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have
either or both of the following: (a) a Maximum Interest Rate, or ceiling, that
may accrue during any Interest Period and (b) a Minimum Interest Rate, or floor,
that may accrue during any Interest Period. In addition to any Maximum Interest
Rate that may apply to any Floating Rate Note, the interest rate on Floating
Rate Notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general
application.
Except as provided below or in the applicable Pricing Supplement,
interest will be payable, in the case of Floating Rate Notes which reset: (a)
daily, weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement, (b) quarterly, on the third Wednesday of
March, June, September and December of each year, (c) semiannually, on the third
Wednesday of the two months of each year specified in the applicable Pricing
Supplement and (d) annually, on the third Wednesday of the month of each year
specified in the
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applicable Pricing Supplement (each, an "Interest Payment Date" with respect to
Floating Rate Notes) and, in each case, at Maturity. If any Interest Payment
Date other than Maturity for any Floating Rate Note would otherwise be a day
that is not a Business Day, such Interest Payment Date will be postponed to the
next succeeding Business Day, except that in the case of a Floating Rate Note as
to which LIBOR is an applicable Interest Rate Basis and such Business Day falls
in the next succeeding calendar month, such Interest Payment Date will be the
immediately preceding Business Day. If the date of Maturity of a Floating Rate
Note falls on a day that is not a Business Day, the required payment of
principal, premium, if any, and interest will be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on such payment for the period from and after Maturity to the date of
such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes
will be rounded to the nearest one hundred-thousandth of a percentage point,
with five-one millionths of a percentage point rounded upwards (e.g., 9.876545%
(or .09876545) would be rounded to 9.87655% (or .0987655)), and all amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded upwards to the nearest cent.
With respect to each Floating Rate Note, accrued interest is calculated
by multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for Floating Rate Notes
for which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only the
applicable Interest Rate Basis specified in the applicable Pricing Supplement
applied.
Unless otherwise specified in the applicable Pricing Supplement,
Norwest Bank Arizona, National Association will be the "Calculation Agent." Upon
request of the Holder of any Floating Rate Note, the Calculation Agent will
disclose the interest rate then in effect and, if determined, the interest rate
that will become effective as a result of a determination made for the next
succeeding Interest Reset Date with respect to such Floating Rate Note. Unless
otherwise specified in the applicable Pricing Supplement, the "Calculation
Date," if applicable, pertaining to any Interest Determination Date will be the
earlier of (a) the tenth calendar day after such Interest Determination Date,
or, if such day is not a Business Day, the next succeeding Business Day or (b)
the Business Day immediately preceding the applicable Interest Payment Date or
Maturity, as the case may be.
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Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD Rate. Unless otherwise specified in the applicable Pricing
Supplement, "CD Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the CD Rate (a "CD Rate Interest Determination Date"), the rate on
such date for negotiable United States dollar certificates of deposit having the
Index Maturity specified in the applicable Pricing Supplement as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 p.m.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 p.m. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 p.m., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent for negotiable
United States dollar certificates of deposit of major United States money center
banks for negotiable certificates of deposit with a remaining maturity closest
to the Index Maturity specified in the applicable Pricing Supplement in an
amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing
Supplement, "CMT Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the CMT Rate (a TMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page under the caption "...Treasury
Constant Maturities...Federal Reserve Board Release H.15...Mondays Approximately
3:45 p.m.," under the column for the Designated CMT Maturity Index for (a) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (b) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement for
the week or the month, as applicable, ended immediately preceding the week or
the month, as applicable, in which the related CMT Rate Interest Determination
Date falls. If such rate is no longer displayed on the relevant page or is not
displayed by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index as
published in H.15(519). If such rate is no longer
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published or is not published by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate on such CMT Rate Interest Determination Date
will be such treasury constant maturity rate for the Designated CMT Maturity
Index (or other United States Treasury rate for the Designated CMT Maturity
Index) for the CMT Rate Interest Determination Date with respect to such
Interest Reset Date as may then be published by either the Board of Governors of
the Federal Reserve System or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in H.15(519). If such
information is not provided by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate on the CMT Rate Interest Determination Date
will be calculated by the Calculation Agent and will be a yield to maturity,
based on the arithmetic mean of the secondary market offered rates as of
approximately 3:30 p.m., New York City time, on such CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers in The City of New
York (which may include the Agents or their affiliates) (each, a "Reference
Dealer") selected by the Calculation Agent (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such Treasury
Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offered rates as of approximately
3:30 p.m., New York City time, on such CMT Rate Interest Determination Date of
three Reference Dealers in The City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index and in an amount of at least $100 million. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offered
rates obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers so
selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate
determined as of such CMT Rate Interest Determination Date will be the CMT Rate
in effect on such CMT Rate Interest Determination Date. If two Treasury Notes
with an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the Calculation Agent will obtain quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service (or any successor service) on the page specified in the
applicable Pricing Supplement (or any other page as may replace such page on
such service) for the purpose of displaying Treasury
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Constant Maturities as reported in H.15(519). If no such page is specified in
the applicable Pricing Supplement, the Designated CMT Telerate Page shall be
7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity
of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated or, if no such maturity is specified in the applicable
Pricing Supplement, 2 years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the caption "Commercial Paper - Nonfinancial" or, if unavailable, under such
heading representing commercial paper issued by non-financial entities where the
bond rating is "Aa" or the equivalent from a nationally recognized statistical
rating organization. In the event that such rate is not published by 3:00 p.m.,
New York City time, on the related Calculation Date, then the Commercial Paper
Rate on such Commercial Paper Rate Interest Determination Date will be the Money
Market Yield of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in Composite
Quotations under the heading "Commercial Paper" (with an Index Maturity of one
month or three months being deemed to be equivalent to an Index Maturity of 30
days or 90 days, respectively). If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 p.m., New York City time, on the
related Calculation Date, then the Commercial Paper Rate on such Commercial
Paper Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the offered
rates at approximately 11:00 a.m., New York City time, on such Commercial Paper
Rate Interest Determination Date of three leading dealers of commercial paper in
The City of New York (which may include the Agents or their affiliates) selected
by the Calculation Agent for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement placed for an industrial issuer
whose bond rating is "Aa," or the equivalent, from a nationally recognized
statistical rating organization; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Commercial Paper Rate determined as of such Commercial Paper Rate Interest
Determination Date will be the Commercial Paper Rate in effect on such
Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
---------
360 - (D x M)
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where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable Interest Reset Period.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 a.m.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable
Pricing Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 p.m., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 p.m., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent prior to 9:00 a.m., New York City
time, on such Federal Funds Rate Interest Determination Date; provided, however
that if the brokers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Rate determined as of such Federal
Funds Rate Interest Determination Date
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will be the Federal Funds Rate in effect on such Federal Funds Rate Interest
Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(a) With respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined with
reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (i) if "LIBOR Reuters" is specified in the applicable
Pricing Supplement, the arithmetic mean of the offered rates (unless
the Designated LIBOR Page by its terms provides only for a single rate,
in which case such single rate shall be used) for deposits in the
Designated LIBOR Currency having the Index Maturity specified in such
Pricing Supplement, commencing on the applicable Interest Reset Date,
that appear (or, if only a single rate is required as aforesaid,
appears) on the Designated LIBOR Page as of 11:00 a.m., London time, on
such LIBOR Interest Determination Date, or (ii) if "LIBOR Telerate" is
specified in the applicable Pricing Supplement or if neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the rate for deposits
in the Designated LIBOR Currency having the Index Maturity specified in
such Pricing Supplement, commencing on such Interest Reset Date, that
appears on the Designated LIBOR Page as of 11:00 a.m., London time, on
such LIBOR Interest Determination Date. If fewer than two such offered
rates so appear, or if no such rate so appears, as applicable, LIBOR on
such LIBOR Interest Determination Date will be determined in accordance
with the provisions described in clause (b) below.
(b) With respect to a LIBOR Interest Determination Date on
which fewer than two offered rates appear, or no rate appears, as the
case may be, on the Designated LIBOR Page as specified in clause (a)
above, the Calculation Agent will request the principal London offices
of each of four major reference banks (which may include affiliates of
the Agents) in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Designated LIBOR Currency for the period
of the Index Maturity specified in the applicable Pricing Supplement,
commencing on the applicable Interest Reset Date, to prime banks in the
London interbank market at approximately 11:00 a.m., London time, on
such LIBOR Interest Determination Date and in a principal amount that
is representative for a single transaction in the Designated LIBOR
Currency in such market at such time. If at least two such quotations
are so provided, then LIBOR on such LIBOR Interest Determination Date
will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., in the applicable Principal Financial Center,
on such LIBOR Interest Determination Date by three major banks (which
may include affiliates of the Agents) in such Principal Financial
Center selected by the Calculation Agent for loans in the Designated
LIBOR Currency to leading European banks, having the Index Maturity
specified in the applicable Pricing
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Supplement and in a principal amount that is representative for a
single transaction in the Designated LIBOR Currency in such market at
such time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined as of such LIBOR Interest Determination Date will be LIBOR
in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in
the applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) or the page specified in such Pricing
Supplement (or any other page as may replace such page or such service) for the
purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor service)
or the page specified in such Pricing Supplement (or any other page as may
replace such page or such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 p.m., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 page for such Prime Rate Interest Determination Date, then the Prime
Rate shall be the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent. If fewer than four such quotations are so provided, then the Prime Rate
shall be the arithmetic mean of four prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date as furnished in The City
of New York by the major money center banks, if any, that have provided such
quotations and by a reasonable number of substitute banks or trust companies
(which may include affiliates of the Agents) to obtain four such prime rate
quotations, provided such substitute banks or trust companies are organized and
doing business under the laws of the United States, or any State thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by the
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Calculation Agent to provide such rate or rates; provided, however, that if the
banks or trust companies so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Prime Rate determined as of such Prime Rate
Interest Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date. "Reuters Screen USPRIME1 Page" means the display on
the Reuter Monitor Money Rates Service (or any successor service) on the
"USPRIMEI" page (or such other page as may replace the USPRIME1 page on such
service for the purpose of displaying prime rates or base lending rates of major
United States banks).
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable Pricing
Supplement, as such rate is published in H.15(519) under the heading "Treasury
Bills-auction average (investment)" or, if not published by 3:00 p.m., New York
City time, on the related Calculation Date, the auction average rate of such
Treasury Bills (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the Auction of Treasury Bills having the Index Maturity specified in the
applicable Pricing Supplement are not reported as provided by 3:00 p.m., New
York City time, on the related Calculation Date, or if no such Auction is held,
then the Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 p.m., New York City
time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers (which may include the
Agents or their affiliates) selected by the Calculation Agent, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity specified
in the applicable Pricing Supplement; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Treasury Rate determined as of such Treasury Rate Interest Determination
Date will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
Other/Additional Provisions; Addendum
Any provisions with respect to the Notes, including the specification
and determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any other
term relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
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Amortizing Notes
The Company may from time to time offer Notes ("Amortizing Notes") with
the amount of principal thereof and interest thereon payable in installment over
the term of such Notes. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. Further information concerning
additional terms and provisions of Amortizing Notes will be specified in the
applicable Pricing Supplement, including a table setting forth repayment
information for such Amortizing Notes.
Discount Notes
The Company may offer Notes ("Discount Notes") from time to time that
have an Issue Price (as specified in the applicable Pricing Supplement) that is
less than 100% of the principal amount thereof (i.e., par) generally by more
than a percentage equal to the product of 0.25% and the number of full years to
the Stated Maturity Date. Discount Notes may not bear any interest currently or
may bear interest at a rate that is below market rates at the time of issuance.
The difference between the Issue Price of a Discount Note and par is referred to
herein as the "Discount." In the event of redemption, repayment or acceleration
of maturity of a Discount Note, the amount payable to the Holder of such
Discount Note will be equal to the sum of (a) the Issue Price (increased by any
accruals of Discount) and, in the event of any redemption of such Discount Note
(if applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) and (b) any unpaid
interest accrued thereon to the date of such redemption, repayment or
acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method. The
constant yield will be calculated using a 30-day month, 360-day year convention,
a compounding period that, except for the Initial Period (as hereinafter
defined), corresponds to the shortest period between Interest Payment Dates for
the applicable Discount Note (with ratable accruals within a compounding
period), a coupon rate equal to the initial coupon rate applicable to such
Discount Note and an assumption that the maturity of such Discount Note will not
be accelerated. If the period from the date of issue to the initial Interest
Payment Date for a Discount Note (the "Initial Period") is shorter than the
compounding period for such Discount Note, a proportionate amount of the yield
for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then such period will be divided into a
regular compounding period and a short period with the short period being
treated as provided in the preceding sentence. The accrual of the applicable
Discount may differ from the accrual of original issue discount for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), certain Discount
Notes may not be treated as having original issue discount within the meaning of
the Code, and Notes other than Discount Notes may be treated
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as issued with original issue discount for federal income tax purposes. See
"Certain United States Federal Income Tax Considerations" herein.
Indexed Notes
The Company may from time to time offer Notes ("Indexed Notes") with
the amount of principal, premium and/or interest payable in respect thereof to
be determined with reference to the price or prices of specified commodities or
stocks, to the exchange rate of one or more designated currencies (including a
composite currency such as the ECU) relative to an indexed currency or to other
items, in each case as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment at
Maturity that is greater than or less than the principal amount of such Indexed
Notes depending upon the relative value at Maturity of the specified indexed
item. Information as to the method for determining the amount of principal,
premium, if any, and/or interest, if any, payable in respect of Indexed Notes,
certain historical information with respect to the specified indexed item and
any material tax considerations associated with an investment in Indexed Notes
will be specified in the applicable Pricing Supplement. See also "Risk Factors."
Book-Entry Notes
The Company has established a depositary arrangement with The
Depository Trust Company with respect to the Book-Entry Notes, the terms of
which are summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes of like tenor and terms up to
$200,000,000 aggregate principal amount will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depositary, and will be registered in the name of the
Depositary or a nominee of the Depositary. No Global Security may be transferred
except as a whole by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or such nominee to a successor
of the Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided in this section, the Beneficial
Owners of the Global Security or Securities representing Book-Entry Notes will
not be entitled to receive physical delivery of Certificated Notes and will not
be considered the Holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferable. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary and, if such Beneficial Owner is not a Participant, on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global Security
or the Indenture. The laws of some jurisdictions require that certain purchasers
of securities
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take physical delivery of such securities in certificated form. Such limits and
such laws may impair the ability to transfer beneficial interests in a Global
Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (a) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Securities, or the Depositary ceases to be a clearing agency
registered under the Exchange Act, and, in any such case, the Company shall not
have appointed a successor to the Depositary within 60 days thereafter, (b) the
Company in its sole discretion determines that the Global Securities shall be
exchangeable for Certificated Notes or (c) there shall have occurred and be
continuing an Event of Default under the Indenture with respect to the Notes.
Upon any such exchange, the Certificated Notes shall be registered in the names
of the Beneficial Owners of the Global Security or Securities representing
Book-Entry Notes, which names shall be provided by the Depositary's relevant
Participants (as identified by the Depositary) to the Trustee.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the
Book-Entry Notes. The Book-Entry Notes will be issued as fully
registered securities registered in the name of Cede & Co. (the
Depositary's partnership nominee). One fully registered Global Security
will be issued for each issue of Book-Entry Notes, each in the
aggregate principal amount of such issue, and will be deposited with
the Depositary. If, however, the aggregate principal amount of any
issue exceeds $200,000,000, one Global Security will be issued with
respect to each $200,000,000 of principal amount and an additional
Global Security will be issued with respect to any remaining principal
amount of such issue.
The Depositary is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. The Depositary holds
securities that its participants ("Participants") deposit with the
Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants of
the Depositary ("Direct Participants") include securities brokers and
dealers (including the Agents), banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned
by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association
S-26
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of Securities Dealers, Inc. Access to the Depositary's system is also
available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system
must be made by or through Direct Participants, which will receive a
credit for such Book-Entry Notes on the Depositary's records. The
ownership interest of each actual purchaser of each Book-Entry Note
represented by a Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depositary of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in a Global Security representing
Book-Entry Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners
of a Global Security representing Book-Entry Notes will not receive
Certificated Notes representing their ownership interests therein,
except in the event that use of the book-entry system for such
Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities
representing Book-Entry Notes which are deposited with, or on behalf
of, the Depositary are registered in the name of the Depositary's
nominee, Cede & Co. The deposit of Global Securities with, or on behalf
of, the Depositary and their registration in the name of Cede & Co.
effect no change in beneficial ownership. The Depositary has no
knowledge of the actual Beneficial Owners of the Global Securities
representing the Book-Entry Notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such
Book-Entry Notes are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by the
Depositary to Direct Participants, by Direct Participants to Indirect
Participants, and by Direct and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to
time.
Neither the Depositary nor Cede & Co. will consent or vote
with respect to the Global Securities representing the Book-Entry
Notes. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the Company as soon as possible after the applicable record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose accounts the Book-Entry
Notes are credited on the applicable record date (identified in a
listing attached to the Omnibus Proxy).
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Principal, premium, if any, and/or interest, if any, payments
on the Global Securities representing the Book-Entry Notes will be made
in immediately available funds to the Depositary. The Depositary's
practice is to credit Direct Participants' accounts on the applicable
payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that
it will not receive payment on such date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the
accounts of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participant and not of the
Depositary, the Trustee or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment
of principal, premium, if any, and/or interest, if any, to the
Depositary is the responsibility of the Company and the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to
the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co.
If less than all of the Book-Entry Notes of an issue are being
redeemed, the Depositary's practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be
redeemed.
A Beneficial Owner shall give notice of any option to elect to
have its Book-Entry Notes repaid by the Company, through its
Participant, to the Trustee, and shall effect delivery of such
Book-Entry Notes by causing the Direct Participant to transfer the
Participant's interest in the Global Security or Securities
representing such Book-Entry Notes, on the Depositary's records, to the
Trustee. The requirement for physical delivery of Book-Entry Notes in
connection with a demand for repayment will be deemed satisfied when
the ownership rights in the Global Security or Securities representing
such Book-Entry Notes are transferred by Direct Participants on the
Depositary's records.
The Depositary may discontinue providing its services as
securities depository with respect to the Book-Entry Notes at any time
by giving reasonable notice to the Company or the Trustee. Under such
circumstances, in the event that a successor securities depository is
not obtained, Certificated Notes are required to be printed and
delivered.
The Company may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor securities
depository). In that event, Certificated Notes will be printed and
delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt organizations, regulated
investment companies, dealers in securities or currencies, persons holding Notes
as a hedge against currency risks or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the United States dollar.
It also does not deal with holders other than original purchasers (except where
otherwise specifically noted). Persons considering the purchase of the Notes
should consult their tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Note that is for United States Federal income tax purposes (a) a citizen or
resident of the United States, (b) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (c) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or (d)
any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. The term also
includes certain former citizens of the United States. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S.
Holder.
U.S. Holders
Payments of Interest
Payments of interest on a Note generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting).
Original Issue Discount
The following summary is a general discussion of the United States
Federal income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount "Original Issue
Discount Notes"). The following summary is based upon final Treasury regulations
(the "OID Regulations") released by the Internal Revenue Service ("IRS") on
January 27, 1994, as amended on June 11, 1996, under the original issue discount
provisions of the Code.
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For United States Federal income tax purposes, original issue discount
is the excess of the stated redemption price at maturity of a Note over its
issue price, if such excess equals or exceeds a de minimis amount (generally 1/4
of 1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note that matures more
than one year from the date of issuance must include original issue discount in
income as ordinary interest for United States Federal income tax purposes as it
accrues under a constant yield method based on a compounding of interest in
advance of receipt of the cash payments attributable to such income, regardless
of such U.S. Holder's regular method of tax accounting. In general, the amount
of original issue discount included in income by the initial U.S. Holder of an
Original Issue Discount Note is the sum of the daily portions of original issue
discount with respect to such Original Issue Discount Note for each day during
the taxable year (or portion of the taxable year) on which such U.S. Holder held
such Original Issue Discount Note. The "daily portion" of original issue
discount on any Original Issue Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (a) the product of the Original Issue Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period) and (b) the amount of any qualified stated interest
payments allocable to such accrual period. The "adjusted issue price" of an
Original Issue Discount Note at the beginning of any accrual period is the sum
of the issue price
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of the Original Issue Discount Note plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the Original Issue Discount Note that were not qualified stated interest
payments. Under these rules, U.S. Holders generally will have to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an
amount that is greater than its adjusted issue price as of the purchase date and
less than or equal to the sum of all amounts payable on the Original Issue
Discount Note after the purchase date other than payments of qualified stated
interest, will be considered to have purchased the Original Issue Discount Note
at an "acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such Original Issue Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the Original Issue Discount Note)
will be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
("Variable Notes") are subject to special rules whereby a Variable Note will
qualify as a "variable rate debt instrument" if (a) its issue price does not
exceed the total noncontingent principal payments due under the Variable Note by
more than a specified de minimis amount and (b) it provides for stated interest,
paid or compounded at least annually, at current values of (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a
single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
is a qualified floating rate if it is equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Note (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Note's issue date) will be treated as a single
qualified floating rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to one
or more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations unless
such cap or floor is fixed throughout the term of the Note. An "objective rate"
is a rate (other than a qualified floating rate) that is obtained using a single
fixed formula and that is based on objective financial or economic information.
A rate will not qualify as an objective rate if it is based on information that
is within the control
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of the issuer (or a related party) or that is unique to the circumstances of the
issuer (or a related party), such as dividends, profits or the value of the
issuer's stock (although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the issuer). A "qualified inverse
floating rate" is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that if a Variable
Note provides for stated interest at a fixed rate for an initial period of one
year or less followed by a variable rate that is either a qualified floating
rate or an objective rate and if the variable rate on the Variable Note's issue
date is intended to approximate the fixed rate (e.g., the value of the variable
rate on the issue date does not differ from the value of the fixed rate by more
than 25 basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OlD Regulations, and if
interest on such Note is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually, then all stated interest on
such Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified de
minimis amount. The amount of qualified stated interest and the amount of
original issue discount, if any, that accrues during an accrual period on such
Variable Note is determined under the rules applicable to fixed rate debt
instruments by assuming that the variable rate is a fixed rate equal to (a) in
the case of a qualified floating rate or qualified inverse floating rate, the
value as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (b) in the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note. The qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
during the accrual period pursuant to the foregoing.
In general, any other Variable Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that
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qualifies as a "variable rate debt instrument" and provides for stated interest
at a fixed rate in addition to either one or more qualified floating rates or a
qualified inverse floating rate, the fixed rate is initially converted into a
qualified floating rate (or a qualified inverse floating rate, if the Variable
Note provides for a qualified inverse floating rate). Under such circumstances,
the qualified floating rate or qualified inverse floating rate that replaces the
fixed rate must be such that the fair market value of the Variable Note as of
the Variable Note's issue date is approximately the same as the fair market
value of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the fixed
rate. Subsequent to converting the fixed rate into either a qualified floating
rate or a qualified inverse floating rate, the Variable Note is then converted
into an "equivalent" fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate
debt instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. In each accrual period, appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Variable Note would be treated
as a contingent payment debt obligation. U.S. Holders should be aware that on
June 11, 1996 the Treasury Department issued final regulations (the "CPDI
Regulations") concerning the proper United Stated Federal income tax treatment
of contingent payment debt instruments. In general, the CPDI Regulations would
cause the timing and character of income, gain or loss reported on a contingent
payment debt instrument to substantially differ from the timing and character of
income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law.
Specifically, the CPDI Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a U.S.
Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss (depending
upon the circumstances). The CPDI Regulations apply to debt instruments issued
on or after August 13, 1996. The proper United States Federal income tax
treatment of Variable Notes that are treated as contingent payment debt
obligations will be more fully described in the applicable Pricing Supplement.
Furthermore, any other special United States Federal income tax considerations,
not otherwise discussed herein, which are applicable to any particular issue of
Notes will be discussed in the applicable Pricing Supplement.
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Certain of the Notes (a) may be redeemable at the option of the Company
prior to their stated maturities (a "call option") and/or (b) may be repayable
at the option of the Holder prior to their stated maturities (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with such
features should consult their tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all
interest (including stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount, and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term
Notes") will be treated as having been issued with original issue discount. In
general, an individual or other cash method U.S. Holder is not required to
accrue such original issue discount unless the U.S. Holder elects to do so. If
such an election is not made, any gain recognized by the U.S. Holder on the
sale, exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue
Discount Note, for an amount that is less than its issue price (or, in the case
of a subsequent purchaser, its stated redemption price at maturity) or, in the
case of an Original Issue Discount Note, for an amount that is less than its
adjusted issue price as of the purchase date, such U.S. Holder will be treated
as having purchased such Note at a "market discount," unless such market
discount is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to
treat any partial principal payment (or, in the case of an Original Issue
Discount Note, any payment that does not constitute qualified stated interest)
on, or any gain realized on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the lesser of (a) the amount
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of such payment or realized gain or (b) the market discount which has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. Market discount will be considered
to accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the U.S. Holder elects to accrue market discount on an
economic accrual basis. If such Note is disposed of in a nontaxable transaction
(other than as provided in Sections 1276(c) and (d) of the Code), accrued market
discount will be includable as ordinary income to the U.S. Holder as if such
U.S. Holder had sold the Note at its then fair market value.
A U.S. Holder may be required to defer the deduction of all or a
portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Note with market discount until the maturity
of the Note or certain earlier dispositions (including a nontaxable transaction
other than as provided in Sections 1276(c) and (d) of the Code), because a
current deduction is only allowed to the extent the net direct interest expense
exceeds an allocable portion of market discount. A U.S. Holder may elect to
include market discount in income currently as it accrues (on either a ratable
or semiannual compounding basis), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
Note and upon the receipt of certain cash payments and regarding the deferral of
interest deductions will not apply. Generally, such currently included market
discount is treated as ordinary interest for United States Federal income tax
purposes. Such an election will apply to all debt instruments acquired by the
U.S. Holder on or after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the IRS.
Premium
If a U.S. Holder purchases a Note for an amount that is greater than
the sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. A U.S. Holder who elects to amortize bond premium must reduce
his tax basis in the Note by the amount of the premium amortized in any year.
Any election to amortize bond premium applies to all taxable debt instruments
then owned and thereafter acquired by the U.S. Holder on or after the first day
of the first taxable year to which such election applies and may be revoked only
with the consent of the IRS.
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Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a
Note, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a
Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
such Note. Such gain or loss will be long-term capital gain or loss if the Note
were held for more than one year. Long-term capital gain realized by a U.S.
Holder generally is subject to a maximum rate of 28% with respect to property
held for more than one year and to a maximum rate of 20% with respect to
property held more than 18 months.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(a) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (a) is signed by the beneficial owner
of the Note under penalties of perjury, (b) certifies that such owner is not a
U.S. Holder and (c) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. Market discount will
not constitute interest for purposes of the portfolio debt provisions. If a Note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. Recently adopted
Regulations would require the production of certain documentary evidence to
support the claim for exemption by a non-U.S. Holder with respect to payments
made after December 31, 1998.
Generally, a non-U.S. Holder will not be subject to Federal income
taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, unless (a) such Holder is an individual who is present in
the United States for 183 days or more in the taxable year of disposition, and
either (i) such individual has a "tax home" (as defined in Section 911(d)(3) of
the Code) in the United States (unless such gain is attributable to a fixed
place of business in a foreign country maintained by such individual and has
been subject to foreign tax of at least
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10%) or (ii) the gain is attributable to an office or other fixed place of
business maintained by such individual in the United States or (b) the gain is
effectively connected with the conduct of a trade or business in the United
States by the non-U.S. Holder.
If a non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest (including original issue discount) on the Note
is effectively connected with the conduct of such trade or business, the
non-U.S. Holder, although exempt from the withholding tax discussed in the
preceding paragraph, will generally be subject to regular United States income
tax on interest (including any original issue discount) and on any gain realized
on the sale, exchange or other disposition of a Note in the same manner as if it
were a U.S. Holder. See the discussion above regarding U.S. Holders. In lieu of
the certificate described above, such a Holder will be required to provide to
the Company a properly executed IRS Form 4224 in order to claim an exemption
from withholding tax. In addition, if such non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest (including original issue discount)
on and any gain recognized on the sale, exchange or other disposition of a Note
will be included in the effectively connected earnings and profits of such
non-U.S. Holder if such interest or gain, as the case may be, is effectively
connected with the conduct by the non-U.S. Holder of a trade or business in the
United States.
The Notes will not be includable in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
Notes would have been effectively connected with the conduct by such individual
of a trade or business in the United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments (including original issue discount) made in respect of the
Notes to registered owners who are not "exempt recipients" and who fail to
provide certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the Notes to a U.S. Holder must
be reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
Under current Treasury Regulations, payment on the sale, exchange or
other disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker is
a United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period,
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information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption. Under proposed Treasury Regulations, backup withholding may apply
to any payment which such broker is required to report if such broker has actual
knowledge that the payee is a United States person. Payments to or through the
United States office of a broker will be subject to backup withholding and
information reporting unless the Holder certifies, under penalties of perjury,
that it is not a United States person or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification
for an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable. Any amounts withheld
under the backup withholding rules from a payment to a beneficial owner would be
allowed as a refund or a credit against such beneficial owner's United States
Federal income tax provided the required information is furnished to the IRS.
On October 7, 1997, the U.S. Treasury Department issued final Treasury
regulations (and subsequently released guidance regarding the effective date of
such Treasury regulations) (the "Treasury Regulations") governing information
reporting and the certification procedures regarding withholding and backup
withholding on certain amounts paid to non-United States persons after December
31, 1999. Such regulations, among other things, may change the certification
procedures relating to the receipt by intermediaries of payments on behalf of a
beneficial owner of a Note. Prospective investors should consult their tax
advisors regarding the effect, if any, of such new Treasury Regulations on an
investment in the Notes.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the
Company to or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc
Montgomery Securities LLC, Salomon Brothers Inc and UBS Securities LLC (each an
"Agent" and together, the "Agents"). The Company may also appoint, and sell
Notes from time to time to or through, one or more additional agents, on
substantially the same terms as those applicable to the Agents, and any such
additional agent will be specified in the applicable Pricing Supplement. Any
such additional agent shall, with respect to any such Notes, and to the extent
applicable, be deemed to be included in all references to an "Agent" or "Agents"
hereunder. The Agents, individually or in a syndicate, may purchase Notes, as
principal, from the Company from time to time for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the time of
resale as determined by the applicable Agent, or, if so specified in the
applicable Pricing Supplement, for resale at a fixed offering price. If agreed
to by the Company and an Agent, such Agent may also utilize its reasonable
efforts on an agency basis to solicit offers to purchase the Notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to any Agent, ranging from
.125% to .750% of the principal amount of each Note, depending upon its Stated
Maturity Date, sold
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through such Agent as an agent of the Company. Commissions with respect to Notes
with stated maturities in excess of 30 years that are sold through an Agent as
an agent of the Company will be negotiated between the Company and such Agent at
the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any
Note sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The Company reserves the right to withdraw, cancel or modify the offer
made hereby without notice and may reject offers in whole or in part (whether
placed directly with the Company or through an Agent). Each Agent will have the
right, in its discretion reasonably exercised, to reject in whole or in part any
offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement,
payment of the purchase price of the Notes will be required to be made in
immediately available funds in U.S. dollars in The City of New York on the date
of settlement. See "Description of Notes-General."
The Agents may sell to or through dealers who may resell to investors,
and the Agents may pay all or part of their discount or commission to such
dealers. Such dealers may be deemed to be "underwriters" within the meaning of
the Act.
Upon issuance, the Notes will not have an established trading market.
The Notes will not be listed on any securities exchange. The Agents may from
time to time purchase and sell Notes in the secondary market, but the Agents are
not obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or that there will be liquidity in the secondary
market if one develops. From time to time, the Agents may make a market in the
Notes, but the Agents are not obligated to do so and may discontinue any
market-making activity at any time.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify the Agents against, and to provide contribution with respect
to, certain liabilities (including liabilities under the Securities Act). The
Company has agreed to reimburse the Agents for certain other expenses.
In connection with the offering made hereby, the Agents may purchase
and sell the Notes in the open market. These transactions may include
over-allotment and stabilizing transactions
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and purchases to cover short positions created by the Agents in connection with
the offering. Stabilizing transactions consist of certain bids or purchases for
the purpose of preventing or retarding a decline in the market price of the
Notes, and short positions created by the Agents involve the sale by the Agents
of a greater aggregate principal amount of Notes than they are required to
purchase from the Company. The Agents also may impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the Notes sold in
the offering may be reclaimed by the Agents if such Notes are repurchased by the
Agents in stabilizing or coveting transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Notes, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
In the ordinary course of business, certain of the Agents and their
affiliates have engaged and may in the future engage in investment and
commercial banking transactions with the Company and certain of its affiliates.
NationsBank of Texas, N.A., an affiliate of NationsBanc Montgomery Securities
LLC, has a commercial banking relationship with the Company and has provided the
Company with credit facilities in the aggregate amount of $450 million.
From time to time, the Company may issue and sell other Securities
described in the accompanying Prospectus, and the amount of Notes offered hereby
is subject to reduction as a result of such sales.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the
Company by the law firm of Kutak Rock, Denver, Colorado and for the Agents by
Latham & Watkins, Los Angeles, California. Members and attorneys of Kutak Rock
own approximately 32,000 shares of common stock of the Company.
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PROSPECTUS
FRANCHISE FINANCE CORPORATION OF AMERICA
$1,000,000,000
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
Franchise Finance Corporation of America (the "Company") may from time
to time offer in one or more series (i) its debt securities (the "Debt
Securities"), or (ii) shares of its preferred stock (the "Preferred Stock"), or
(iii) shares of its Common Stock, par value $.01 per share (the "Common Stock"),
with an aggregate public offering price of up to $1,000,000,000 on terms to be
determined at the time of offering. The Debt Securities, the Preferred Stock and
the Common Stock (collectively, the "Securities") may be offered, separately or
together, in separate series, in amounts, at prices and on terms to be set forth
in one or more supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the Company's option or repayment
at the holder's option, terms for sinking fund payments, terms for conversion
into Preferred Stock or Common Stock, covenants and any initial public offering
price; and (ii) in the case of Preferred Stock, the specific designation and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; and (iii) in the case of
Common Stock, any initial public offering price. In addition, such specific
<PAGE>
terms may include limitations on actual or constructive ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes. See "Restrictions on Transfers of Capital
Stock."
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from
time to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable from
the information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
-----------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------------------------
The date of this Prospectus is April 16, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The registration
statement on Form S-3 (of which this Prospectus is a part) (the "Registration
Statement"), the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company makes its
filings electronically. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, which information can be accessed at
http://www.sec.gov. In addition, the Common Stock is listed on the New York
Stock Exchange and similar information concerning the Company can be inspected
and copied at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission the Registration Statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities. This Prospectus does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the Commission's rules and regulations. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(ii) the Company's Current Report on Form 8-K dated January
27, 1998;
(iii) the Company's Current Report on Form 8-K dated February
17, 1998; and
(iv) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A
filed June 28, 1994.
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All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to termination of the offering of the Securities, shall be
deemed to be incorporated by reference in this Prospectus from the date of the
filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded to the extent that a statement contained in this Prospectus or in any
document filed after the date of this Prospectus which is deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus (not
including exhibits to the documents that have been incorporated herein by
reference unless the exhibits are themselves specifically incorporated by
reference). Such written or oral request should be directed to the Corporate
Secretary at 17207 North Perimeter Drive, Scottsdale, Arizona 85255, telephone
number (602) 585-4500.
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THE COMPANY
Franchise Finance Corporation of America (the "Company") is a specialty
retail finance company dedicated primarily to providing real estate financing to
the chain restaurant industry, as well as to the convenience store and
automotive parts and service industries. The Company's primary strategy is to
provide all necessary financing for multi-unit operators and franchisors who
operate retail properties in which the Company invests. The Company's
investments are diversified by geographic region, operator and chain. The
Company's Common Stock trades on the New York Stock Exchange (the "NYSE") under
the symbol FFA. The Company is a Delaware corporation and maintains its
corporate offices at 17207 North Perimeter Drive, Scottsdale, Arizona 85255 and
its telephone number is (602) 585-4500.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include investment in additional
properties, the expansion and improvement of certain properties in the Company's
portfolio and the repayment of indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for
the periods shown. The ratio shown for the year ended December 31, 1993 is
derived from the combined historical financial information of Franchise Finance
Corporation of America I, a Delaware corporation, and eleven real estate limited
partnerships, the predecessors to the Company (the "Combined Predecessors"). The
ratio shown for the year ended December 31, 1994 is derived from the financial
information of both the Combined Predecessors and the Company. The ratios shown
for the years ended December 31, 1995, 1996 and 1997 are for the Company.
The Company commenced operations on June 1, 1994 as a result of the
merger of the Combined Predecessors. The information for the periods prior to
that date is, in effect, a restatement of the historical operating results of
Franchise Finance Corporation of America I and eleven real estate limited
partnerships as if they had been consolidated since January 1, 1993. The
predecessor companies were primarily public real estate limited partnerships
which were prohibited from borrowing for real estate acquisitions and had no
opportunity for growth through acquisitions; therefore, the investment
objectives of the Company are different than the objectives of the Combined
Predecessors, and the information presented below does not necessarily present
the ratios of earnings to fixed charges as they would have been had the Company
operated as a REIT for all periods presented.
Year Ended December 31,
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
43.73 16.78 4.16 3.54 3.04
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The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income
(including gain or loss on the sale of property) before REIT transaction related
costs plus fixed charges. Fixed charges consist of interest expense (including
interest costs capitalized, if any) and the amortization of debt issuance costs.
To date, the Company has not issued any Preferred Stock; therefore, the ratios
of earnings to combined fixed charges and preferred share dividends are the same
as the ratios presented above.
DESCRIPTION OF DEBT SECURITIES
General
The Debt Securities will be direct obligations of the Company, which
may be secured or unsecured, and which may be senior or subordinated
indebtedness of the Company. An unqualified opinion of counsel as to legality of
the Debt Securities will be obtained by the Company and filed by means of a
post-effective amendment or Form 8-K prior to the time any sales of the Debt
Securities are made. The Debt Securities will be issued under an indenture,
dated as of November 21, 1995, subject to such amendments or supplements as may
be adopted from time to time (the "Indenture") between the Company and Norwest
Bank Arizona, National Association, as trustee (the "Trustee"). The Indenture
will be subject to, and governed by, the Trust Indenture Act of 1939, as
amended. The statements made hereunder relating to the Indenture and the Debt
Securities to be issued thereunder are summaries of certain provisions thereof,
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. Capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
Terms
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along with
any applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable material federal income tax considerations. Accordingly, for a
description of the terms of any series of Debt Securities, reference must be
made to both the Prospectus Supplement relating thereto and the description of
the Debt Securities set forth in this Prospectus.
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<PAGE>
The Indenture provides that the Debt Securities may be issued without
limits as to aggregate principal amount, in one or more series, in each case as
established from time to time by the Company's Board of Directors or as
established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
(the "Holders") of the Debt Securities of such series, for issuances of
additional Debt Securities of such series.
The Indenture will provide that the Company may, but need not,
designate more than one Trustee thereunder, each with respect to one or more
series of Debt Securities. Any Trustee under the Indenture may resign or be
removed with respect to one or more series of Debt Securities, and a successor
Trustee may be appointed to act with respect to such series. If two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the Indenture
separate and apart from the trust administered by any other Trustee and, except
as otherwise indicated herein, any action described herein to be taken by a
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities offered thereby for the specific terms thereof, including:
(a) the title of such Debt Securities;
(b) the aggregate principal amount of such Debt Securities and
any limit on such aggregate principal amount (subject to certain
exceptions described in the Indenture);
(c) the price (expressed as a percentage of the principal
amount thereof or otherwise) at which such Debt Securities will be
issued and, if other than the principal amount thereof, the portion of
the principal amount thereof payable upon declaration of acceleration
of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities that is convertible into
Common Stock or Preferred Stock or the method by which any such portion
shall be determined;
(d) if convertible into Common Stock, Preferred Stock, or
both, the terms on which such Debt Securities are convertible
(including the initial conversion price or rate and conversion period)
and, in connection with the preservation of the Company's status as a
REIT, any applicable limitations on conversion or on the ownership or
transferability of the Common Stock or the Preferred Stock into which
such Debt Securities are convertible;
8
<PAGE>
(e) the date or dates, or the method for determining such date
or dates, on which the principal of such Debt Securities will be
payable;
(f) the rate or rates, at which such Debt Securities will bear
interest, if any, or the method by which such rate or rates shall be
determined, the date or dates, or the method for determining such date
or dates, from which any interest will accrue, the dates upon which any
such interest will be payable, the record dates for payment of such
interest, or the method by which any such dates shall be determined,
and the basis upon which interest shall be calculated if other than
that of a 360-day year of twelve 30-day months;
(g) the place or places where the principal of (and premium,
if any) and interest, if any, on such Debt Securities will be payable,
where such Debt Securities may be surrendered for conversion,
registration of transfer, or exchange (each to the extent applicable),
and where notices or demands to or upon the Company in respect of such
Debt Securities and the Indenture may be served;
(h) the period or periods, if any, within which, the price or
prices at which, and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or, in part, at the Company's
option (if the Company has the option to redeem);
(i) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(j) if other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and payable, which may be a
foreign currency, currency unit, or a composite currency or currencies,
and the terms and conditions relating thereto;
(k) whether the amount of payments of principal of (and
premium, if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method (which
index, formula or method may, but need not, be based on a currency,
currencies, currency unit or units or composite currency or currencies)
and the manner in which such amounts shall be determined;
(l) whether such Debt Securities will be issued in
certificated and/or book-entry form, and the identity of any applicable
depositary for such Debt Securities;
9
<PAGE>
(m) whether such Debt Securities will be in registered or
bearer form and, if in registered form, the denominations thereof if
other than $1,000 and any integral multiple thereof and, if in bearer
form, the denominations thereof and terms and conditions relating
thereto;
(n) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof or addition thereto;
(o) any deletions from, modifications of or additions to the
events of default or covenants of the Company, described herein or in
the Indenture with respect to such Debt Securities, and any change in
the right of any Trustee or any of the Holders to declare the principal
amount of any such Debt Securities due and payable;
(p) whether and under what circumstances the Company will pay
any additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge to Holders that are not United
States persons, and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment (and the
terms of any such option);
(q) the subordination provisions, if any, relating to such
Debt Securities;
(r) the provisions, if any, relating to any security provided
for such Debt Securities; and
(s) any other terms of such Debt Securities not inconsistent
with the provisions of the Indenture.
If so provided in the applicable Prospectus Supplement, the Debt
Securities may be issued at a discount below their principal amount and provide
for less than the entire principal amount thereof to be payable upon declaration
of acceleration of the maturity thereof ("Original Issue Discount Securities").
In such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt
Securities will not contain any provisions that would limit the Company's
ability to incur indebtedness or that would afford Holders of Debt Securities
protection in the event of a highly leveraged or similar transaction involving
the Company or in the event of a change of control. Certain existing
restrictions on ownership and transfers of the Common Stock and Preferred Stock
are, however, designed to preserve the Company's status as a REIT and,
therefore, may act to prevent or hinder a change of control. See "Restrictions
on Transfers of Capital Stock." Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the events of default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
10
<PAGE>
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise described in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the applicable Trustee's corporate trust office,
the address of which will be set forth in the applicable Prospectus Supplement;
provided, however, that, at the Company's option, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the applicable register for such Debt Securities or by wire transfer of funds
to such person at an account maintained within the United States.
Subject to certain limitations imposed on Debt Securities in the
Indenture, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tender upon surrender of such Debt
Securities at the applicable Trustee's corporate trust office or at the
applicable office of any agency of the Company. In addition, subject to certain
limitations imposed on Debt Securities in the Indenture, the Debt Securities of
any series may be surrendered for registration by transfer thereof at the
applicable Trustee's corporate trust office or at the applicable office of any
agency of the Company. Every Debt Security surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer and evidence of title and identity satisfactory to the
Trustee, the Company, or its transfer agent, as applicable. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities. However, (with certain exceptions) the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. If the applicable Prospectus Supplement refers to any
transfer agent (in addition to the applicable Trustee) initially designated by
the Company with respect to any series of Debt Securities, the Company may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that the
Company will be required to maintain a transfer agent in each place of payment
for such series. The Company may at any time designate additional transfer
agents with respect to any series of Debt Securities.
Neither the Company nor any Trustee shall be required to (a) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business
11
<PAGE>
15 days before the day of mailing of notice of redemption of any Debt Securities
of that series that may be selected for redemption and ending at the close of
business on the day of mailing the relevant notice of redemption (or publication
of such notice with respect to bearer securities); (b) register the transfer of
or exchange any Debt Security, or portion thereof, so selected for redemption,
in whole or in part, except the unredeemed portion of any Debt Security being
redeemed in part; or (c) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the Holder's option, except
the portion, if any, of such Debt Security not to be so repaid.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may, with or without the
consent of the Holders of any outstanding Debt Securities, consolidate with, or
sell, lease or convey all or substantially all of its assets to, or merge with
or into, any other entity, provided that (a) either the Company shall be the
continuing entity, or the successor entity (if other than the Company) formed by
or resulting from any such consolidation or merger or which shall have received
the transfer of such assets shall be an entity organized and existing under the
laws of the United States or a state thereof and such successor entity shall
expressly assume the Company's obligation to pay the principal of (and premium,
if any) and interest on all the Debt Securities and shall also assume the due
and punctual performance and observance of all the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of such
successor entity, the Company or any subsidiary as a result thereof as having
been incurred by such successor entity, the Company or such subsidiary at the
time of such transaction, no event of default under the Indenture, and no event
that, after notice or the lapse of time, or both, would become such an event of
default, shall have occurred and be continuing; and (c) an officers' certificate
and legal opinion covering such conditions shall be delivered to each Trustee.
Certain Covenants
Existence. Except as permitted under "Merger, Consolidation or Sale of
Assets," the Indenture will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, material rights (by certificate of incorporation, bylaws and statute)
and material franchises; provided, however, that the Company shall not be
required to preserve any right or franchise if its Board of Directors determines
that the preservation thereof is no longer desirable in the conduct of its
business.
Maintenance of Properties. The Indenture will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any
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subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and to cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the Company's judgment may be necessary so that the business carried on or in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its subsidiaries shall not be prevented
from selling or otherwise disposing of their properties for value in the
ordinary course of business.
Insurance. The Indenture will require the Company to, and to cause each
of its subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability.
Payment of Taxes and Other Claims. The Indenture will require the
Company to pay or discharge or cause to be paid or discharged, before the same
shall become delinquent, (a) all taxes, assessments and governmental charges
levied or imposed on it or any subsidiary or on the income, profits or property
of the Company or any subsidiary and (b) all lawful claims for labor, materials
and supplies that, if unpaid, might by law become a lien upon the property of
the Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Indenture will require
the Company, within 15 days after each of the respective dates by which the
Company would have been required to file annual reports, quarterly reports and
other documents with the Commission if the Company were so subject, (a) to
transmit by mail to all Holders of Debt Securities, as their names and addresses
appear in the applicable register for such Debt Securities, without cost to such
Holders, copies of the annual reports, quarterly reports and other documents
that the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections, (b) to file with the Trustee copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections, and (c) to supply, promptly upon written
request and payment of the reasonable cost of duplication and delivery, copies
of such documents to any prospective Holder of Debt Securities.
Additional Covenants. Any additional covenants of the Company with
respect to any of the series of Debt Securities will be set forth in the
Prospectus Supplement relating thereto.
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Events of Default, Notice and Waiver
Unless otherwise provided in the applicable Prospectus Supplement, the
following events are "events of default" with respect to any series of Debt
Securities issued under the Indenture: (a) default for 30 days in the payment of
any installment of interest on any Debt Security of such series; (b) default in
the payment of the principal of (or premium, if any, on) any Debt Security of
such series at its Maturity; (c) default in making any sinking fund payment as
required for any Debt Security of such series; (d) default in the performance or
breach of any other covenant or warranty of the Company contained in the
Indenture (other than a covenant or warranty a default in the performance of
which or the breach of which is elsewhere in this paragraph specifically dealt
with), continued for 60 days after written notice as provided in the applicable
Indenture; (e) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any of its subsidiaries
(including obligations under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles), in an
aggregate principal amount in excess of $10 million or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its subsidiaries (including such leases), in an aggregate principal amount in
excess of $10 million, whether such indebtedness now exists or shall hereafter
be created, which default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary of the
Company; and (g) any other Event of Default as defined with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" has the
meaning ascribed to such term in Regulation S-K promulgated under the Securities
Act.
If an event of default under the Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing, then
in every such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all the Debt Securities of
that series to be due and payable immediately by written notice thereof to the
Company (and to the applicable Trustee if given by the holders). However, at any
time after such a declaration of acceleration with respect to Debt Securities of
such series has been made, but before a judgment or decree for payment of the
money due has been obtained by the applicable Trustee, the holders of not less
than a majority of the principal amount of the outstanding Debt
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Securities of such series may rescind and annul such declaration and its
consequences if (a) the Company shall have deposited with the applicable Trustee
all required payments of the principal of (and premium, if any) and overdue
interest on the Debt Securities of such series, plus certain fees, expenses,
disbursements and advances of the applicable Trustee and (b) all events of
default, other than the nonpayment of accelerated principal (or specified
portion thereof), with respect to Debt Securities of such series have been cured
or waived as provided in the Indenture. The Indenture will also provide that the
holders of not less than a majority in principal amount of the outstanding Debt
Securities of any series may waive any past default with respect to such series
and its consequences, except a default (y) in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or (z) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the holder of each outstanding Debt
Security affected thereby.
The Indenture will require each Trustee to give notice to the holders
of Debt Securities within 90 days of a default under the Indenture unless such
default shall have been cured or waived; provided, however; that such Trustee
may withhold notice to the holders of any series of Debt Securities of any
default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of the Trustee
consider such withholding to be in such holders' interest.
The Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it and no
contrary directions from the holders of more than 50% of the outstanding Debt
Securities of such series. This provision will not prevent, however, any holder
of Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium, if any) and interest on such Debt Securities at the
respective due dates thereof.
The Indenture will provide that the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
the Indenture, unless such holders shall have offered to the Trustee reasonable
security or indemnity. The holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the
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Trustee, or of exercising any trust or power conferred upon the Trustee. The
Trustee may, however, refuse to follow any direction that is in conflict with
any law or the Indenture or that may involve the Trustee in personal liability
or that may be unduly prejudicial to the holders of Debt Securities of such
series not joining therein.
Modification of the Indenture
Modifications and amendments of the Indenture with respect to any
series will be permitted only with the consent of the holders of not less than a
majority in principal amount of all outstanding Debt Securities of such series;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Debt Security of such series, (a) change the
Stated Maturity of the principal of (or premium, if any, on), or any installment
of principal of or interest on any such Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the Maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt Security;
(c) change the place of payment, or the coin or currency, for payment of
principal of (or premium, if any), or interest on any such Debt Security; (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security on or after the Stated Maturity or redemption
date thereof; (e) reduce the above-stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants in the Indenture.
Modifications and amendments of the Indenture will be permitted to be
made by the Company and the Trustee without the consent of any holder of Debt
Securities for any of the following purposes: (a) to evidence the succession of
another person to the Company as obligor under the Indenture; (b) to add to the
covenants of the Company for the benefit of the holders of all or any series of
Debt Securities or to surrender any right or power conferred upon the Company in
the Indenture; (c) to add additional events of default for the benefit of the
holders of
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all or any series of Debt Securities; (d) to add or change certain provisions of
the Indenture to facilitate the issuance of, or to liberalize certain terms of,
Debt Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not adversely
affect the interests of the holders of the Debt Securities of any series in any
material respect; (e) to change or eliminate any provisions of the Indenture,
provided that any such change or elimination shall become effective only when
there are no Debt Securities outstanding of any series created prior thereto
that are entitled to the benefit of such provision; (f) to secure the Debt
Securities; (g) to establish the form or terms of Debt Securities of any Series,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Stock or Preferred Stock; (h) to provide for
the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee; (i)
to cure any ambiguity, defect or inconsistency in the Indenture; provided,
however, that such action shall not adversely affect the interests of holders of
Debt Securities of any series in any material respect; or (j) to supplement any
of the provisions of the Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided, however, that such action shall not adversely affect the interests of
the holders of the Debt Securities of any series in any material respect.
The Indenture provides that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (b) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security in the
applicable Indenture, and (d) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the holders
of Debt Securities of a series. A meeting may be permitted to be called at any
time by the Trustee, and also, upon request, by the Company or the holders of at
least 10% in principal amount of the outstanding Debt Securities of such series,
in any such case upon notice given as
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provided in the Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
the Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver that may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indenture provides that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (a) there shall be no minimum
quorum requirement for such meeting and (b) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture.
Discharge, Defeasance and Covenant Defeasance
If provided for in the applicable Prospectus Supplement, the Company
will be permitted, at its option, to discharge certain obligations to holders of
any series of Debt Securities by irrevocably depositing with the applicable
Trustee, in trust, funds in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities
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are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest.
If provided for in the applicable Prospectus Supplement, the Company
may elect either to (a) defease and be discharged from any and all obligations
with respect to any series of Debt Securities (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold money for payment in trust) ("defeasance") or (b) be released from
certain obligations with respect to such Debt Securities under the applicable
Indenture (generally being the restrictions described under "Certain Covenants",
herein) or, if provided in the applicable Prospectus Supplement, its obligations
with respect to any other covenant, and any omission to comply with such
obligations shall not constitute a default or an event of default with respect
to such Debt Securities ("covenant defeasance"), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to
such Debt Securities that through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the
Company has delivered to the applicable Trustee an opinion of counsel (as
specified in the applicable indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, must refer to and be based on a ruling of the Internal Revenue
Service (the "IRS") or a change in applicable U.S. federal income tax law
occurring after the date of the Indenture. In the event of such defeasance, the
holders of such Debt Securities would thereafter be able to look only to such
trust fund for payment of principal (and premium, if any) and interest.
"Government Obligations" means securities that are (a) direct
obligations of the United States of America or the government which issued the
foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged, or (b)
obligations of
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a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit Obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided, however, that (except
as required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security or (b)
a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or Conversion
Event based on the applicable market exchange rate. "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institution of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities, or (iii) any currency unit or composite
currency other than the ECU for the purposes for which it was established.
Unless otherwise provided in the applicable Prospectus Supplement, all payments
of principal of (and premium, if any) and interest on any Debt Security that is
payable in a foreign currency that ceases to be used by its government of
issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any event
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of default other than the event of default described in clause (d) under "Events
of Default, Notice and Waiver" with respect to the specified sections of the
applicable Indenture (which sections would no longer be applicable to such Debt
Securities) or clause (g) thereunder with respect to any other covenant as to
which there has been covenant defeasance, the amount in such currency, currency
unit or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity, but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such event of default.
The Company would, however, remain liable to make payment of such amounts due at
the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance, including
any modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be, at the option of the
holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
Payment
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any Series of Debt
Securities will be payable at the Trustee's corporate trust office, the address
of which will be stated in the applicable Prospectus Supplement; provided,
however, that, at the Company's option, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security that
remain unclaimed at the end of two years after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for payment
thereof, subject to applicable state escheat laws.
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Global Securities
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such Series.
DESCRIPTION OF COMMON STOCK
The Company has authority to issue 200,000,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"). At March 13, 1998, the Company
had outstanding 97,885,524 shares of Common Stock.
General
The following description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that the
Common Stock will be issuable upon conversion of Debt Securities or Preferred
Stock. An unqualified opinion of counsel as to legality of the Common Stock will
be obtained by the Company and filed by means of a post-effective amendment or
Form 8-K prior to the time any sales of Common Stock are made. The statements
below describing the Common Stock are in all respects subject to and qualified
in their entirety by reference to the applicable provisions of the Company's
Second Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws.
Terms
Subject to the preferential rights of any other shares or series of
stock, holders of Common Stock will be entitled to receive dividends when, as
and if declared by the Company's Board of Directors out of funds legally
available therefor. Payment and declaration of dividends on the Common Stock and
purchases of shares thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on the Preferred Stock, if
any. See "Description of Preferred Stock." Upon any liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
equally and ratably in any assets available for distribution to them, after
payment or provision for payment of the debts and other liabilities of the
Company and the preferential amounts owing with respect to any outstanding
Preferred Stock. The Common Stock will possess ordinary voting rights for the
election of directors and in respect of other corporate matters, each share
entitling the holder thereof to one vote. Holders of Common Stock will not have
cumulative voting rights in the election of
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directors, which means that holders of more than 50% of all the shares of the
Company's Common Stock voting for the election of directors can elect all the
directors if they choose to do so and the holders of the remaining shares of
Common Stock cannot elect any directors. Holders of shares of Common Stock will
not have preemptive rights, which means they have no right to acquire any
additional shares of Common Stock that may be issued by the Company at a
subsequent date. All shares of Common Stock now outstanding are, and additional
shares of Common Stock offered will be when issued, fully paid and
nonassessable; and no shares of Common Stock are or will be subject to any
exchange or conversion rights.
Restrictions on Ownership
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, actually or constructively, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year. To assist the Company in meeting this requirement, the
Company may take certain actions to limit the beneficial ownership, actually or
constructively, by a single person or entity of the Company's outstanding equity
securities. See "Restrictions on Transfers of Capital Stock."
Transfer Agent
The registrar and transfer agent for the Common Stock is Gemisys
Transfer Agents, 7103 South Revere Parkway, Englewood, CO 80112.
DESCRIPTION OF PREFERRED STOCK
The Company has authority to issue up to 10,000,000 shares of Preferred
Stock as described below. At March 13, 1998, there were no shares of Preferred
Stock issued or outstanding.
General
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. An unqualified opinion of counsel as to legality of the
Preferred Stock will be obtained by the Company and filed by means of a
post-effective amendment or Form 8-K prior to the time any sales of Preferred
Stock are made. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Certificate of Incorporation (including the
applicable Certificate of Designations) and Bylaws.
Shares of Preferred Stock may be issued from time to time in one or
more series as authorized by the Company's Board of Directors. Subject to
limitations prescribed by the Delaware General Corporation Law and the
Certificate of Incorporation, the
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Company's Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations and powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution by the Board of Directors or a duly
authorized committee thereof. Notwithstanding the foregoing (i) any series of
Preferred Stock may be voting or non-voting, provided that the voting rights of
any voting shares of Preferred Stock will be limited to no more than one vote
per share on matters voted upon by the holders of such series, and (ii) in the
event any person acquires 20% or more of the outstanding shares of Common Stock
and/or Preferred Stock, the Board of Directors cannot issue any series of
Preferred Stock unless such issuance is approved by the vote of holders of at
least 50% of the outstanding shares of Common Stock. The Preferred Stock will,
when issued, be fully paid and nonassessable and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the
Preferred Stock offered thereby for specific terms, including:
(a) the title and stated value of such Preferred Stock;
(b) the number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
(c) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(d) the date from which dividends on such Preferred Stock
shall accumulate;
(e) the procedures for any auction and remarketing, if any,
for such Preferred Stock;
(f) the provision for a sinking fund, if any, for such
Preferred Stock;
(g) any voting rights of such Preferred Stock;
(h) the provision for redemption, if applicable, of such
Preferred Stock;
(i) any listing of such Preferred Stock on any securities
exchange;
(j) the terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock, including the
conversion price (or manner of
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calculation thereof);
(k) a discussion of material federal income tax considerations
applicable to such Preferred Stock;
(l) any limitations on actual, beneficial or constructive
ownership and restrictions on transfer, in each case as may be
appropriate to preserve the Company's REIT status;
(m) the relative ranking and preferences of such Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
(n) any limitations on issuance of any series of Preferred
Stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and
(o) any other specific terms, preferences, rights, limitations
or restrictions of such Preferred Stock.
Rank
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company, rank (a)
senior to all Common Stock and to all equity or other securities ranking junior
to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (b) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the affairs of the Company; and (c) junior to all equity securities issued by
the Company the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of the affairs of the Company. For
these purposes, the term "equity securities" does not include convertible debt
securities.
Dividends
Holders of shares of the Preferred Stock of each series shall be
entitled to receive, when, as and if declared by the Company's Board of
Directors, out of the Company's assets legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the Company's stock transfer books on such record dates as
shall be fixed by the Company's Board of Directors.
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Dividends on any series of Preferred Stock will be cumulative.
Dividends will be cumulative from and after the date set forth in the applicable
Prospectus Supplement.
If any shares of Preferred Stock of any series are outstanding, full
dividends shall not be declared or paid or set apart for payment on the
Preferred Stock of any other series ranking, as to dividends, on a parity with
or junior to the Preferred Stock of such series for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment on the Preferred Stock of such series for all past dividend periods and
the then current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of Preferred
Stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared on shares of Preferred Stock of such series and
any other series of Preferred Stock ranking on a parity as to dividends of such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Stock of such series and such other series
of Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of Preferred Stock of such series and
such other series of Preferred Stock bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Stock of such series that may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in the Common Stock or
other capital stock of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made on the
Common Stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall the Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
as to dividends or upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any amounts be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the Company (except
by conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
Any dividend payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series that
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remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
Company's option, as a whole or in part, in each case on the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless full cumulative dividends on all
shares of such series of Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend period, no shares of such series of Preferred Stock shall be redeemed
unless all outstanding shares of Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of shares of Preferred Stock of such series to
preserve the Company's REIT status or pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Preferred Stock
of such series. In addition, unless full cumulative dividends on all outstanding
shares of such series of Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series to preserve the Company's REIT status
or pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Preferred Stock of such series.
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If fewer than all the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that is consistent with the
Certificate of Incorporation.
Notice of redemption will be mailed at least 30, but not more than 60,
days before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the Company's stock
transfer books. Each notice shall state: (a) the redemption date; (b) the number
of shares and series of the Preferred Stock to be redeemed; (c) the redemption
price; (d) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (e) that dividends on the
shares to be redeemed will cease to accumulate on such redemption date; and (f)
the date on which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer than all the shares of Preferred Stock of any series
are to be redeemed, the notice mailed to each such holder thereof shall also
specify the number of shares of Preferred Stock to be redeemed from each such
holder and, upon redemption, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof. If notice of redemption of
any shares of Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any shares of Preferred Stock so called for redemption, then from and
after the redemption date dividends will cease to accrue on such shares of
Preferred Stock, such shares of Preferred Stock shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price. In order to facilitate the redemption
of shares of Preferred Stock of any series, the Board of Directors may fix a
record date for the determination of shares of such series of Preferred Stock to
be redeemed.
Subject to applicable law and the limitation on purchases when
dividends on a series of Preferred Stock are in arrears, the Company may, at any
time and from time to time purchase any shares of such series of Preferred Stock
in the open market, by tender or by private agreement.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of the Common Stock or any other class or series of
capital stock of the Company ranking junior to any series of the Preferred Stock
in the distribution of assets upon any liquidation, dissolution or winding up of
the affairs of the Company, the holders of such
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series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. If, upon
any such voluntary or involuntary liquidation, dissolution or winding up, the
legally available assets of the Company are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of any series of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with such
series of Preferred Stock in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of such series of Preferred Stock
and all other such classes or series of capital stock shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of any series of Preferred Stock, the remaining assets of the Company
shall be distributed among the holders of any other classes or series of capital
stock ranking junior to such series of Preferred Stock upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or into any other
entity, or the sale, lease, transfer or conveyance of all or substantially all
of the Company's property or business, shall not be deemed to constitute a
liquidation, dissolution or winding up of the affairs of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock of a series remain outstanding, the Company shall
not, without the affirmative vote or consent of the holders of at least a
majority of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (a) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such
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shares; or (b) amend, alter or repeal the provisions of the Certificate of
Incorporation or the Certificate of Designations for such series of Preferred
Stock, whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of such series
of Preferred Stock or the holders thereof; provided, however, that any increase
in the amount of the authorized Preferred Stock or the creation or issuance of
any other series of Preferred Stock, or any increase in the amount of authorized
shares of such series or any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Preferred Stock of such series with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
Under Delaware law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote as a
class upon a proposed amendment to the Certificate of Incorporation, whether or
not entitled to vote thereon by the Restated Certificate of Incorporation, if
the amendment would increase or decrease the aggregate number of authorized
shares of such series, increase or decrease the par value of the shares of such
series, or alter or change the powers, preferences or special rights of the
shares of such series so as to affect them adversely.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price or manner of calculation thereof, the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
Restrictions on Ownership
For the Company to qualify as a REIT under the Code, not more than 50%
in value of its outstanding capital stock may be owned, actually or
constructively, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
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beneficial ownership, actually or constructively, by a single person or entity
of the Company's outstanding equity securities. See "Restrictions on Transfers
of Capital Stock."
Transfer Agent
The transfer agent and registrar for any series of Preferred Stock will
be set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding capital stock may be
owned, actually or constructively, by five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year, and
such capital stock must be beneficially owned by 100 or more persons during at
least 355 days of a taxable year of 12 months or during a proportionate part of
a shorter taxable year. To ensure that the Company remains qualified as a REIT,
the Certificate of Incorporation, subject to certain exceptions, provides that a
transfer of Common Stock is void if it would result in Beneficial Ownership (as
defined below) of the Common Stock in excess of the Ownership Limit (as defined
below) or would result in the Common Stock being beneficially owned by less than
100 persons. "Transfer" generally means any sale, transfer, gift, assignment,
devise or other disposition of Common Stock, whether voluntary or involuntary,
whether of record or beneficially and whether by operation of law or otherwise.
"Beneficial Ownership" generally means ownership of Common Stock by a person who
would be treated as an owner of such shares of Common Stock either actually or
constructively through the application of Section 544 of the Internal Revenue
Code of 1986, as modified by Section 856(h)(1)(B) of the Internal Revenue Code
of 1986. "Ownership Limit" generally means 9.8% of the outstanding Common Stock
of the Company and, after certain adjustments pursuant to the Certificate of
Incorporation, means such greater percentage of the outstanding Common Stock as
so adjusted. The Board of Directors may, in its discretion, adjust the Ownership
Limit of any Person provided that after such adjustment, the Ownership Limit of
all other persons shall be adjusted such that in no event may any five persons
Beneficially Own more than 49% of the Common Stock. Any class or series of
Preferred Stock may be subject to these restrictions if so stated in the
resolutions providing for the issuance of such Preferred Stock. The Restated
Certificate of Incorporation provides certain remedies to the Board of Directors
in the event the restrictions on Transfer are not met.
All certificates of Common Stock, any other series of the Company's
Common Stock and any class or series of Preferred Stock will bear a legend
referring to the restrictions described above and as described in the
certificate of designation relating to any issuance of Preferred Stock. All
persons who have Beneficial Ownership or who are a shareholder of record of a
specified percentage (or more) of the outstanding capital stock of the
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Company must file a notice with the Company containing information regarding
their ownership of stock as set forth in the Treasury Regulations. Under current
Treasury Regulations, the percentage is set between .5% and 5%, depending on the
number of record holders of capital stock.
This ownership limitation may have the effect of precluding acquisition
of control of the Company by a third party unless the Board of Directors
determines that maintenance of REIT status is no longer in the best interests of
the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a summary of the material provisions which govern the
federal income tax treatment of the Company. The summary is based on current
law, is for general information only, and is not tax advice. The tax treatment
of a holder of any of the Securities will vary depending on the terms of the
specific Securities acquired by such holder, as well as his or her particular
situation. This discussion does not attempt to address any aspects of federal
income taxation relating to holders of Securities. Certain federal income tax
considerations relevant to a holder of Securities will be provided in the
Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE TAX
CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE LAWS.
Qualification of the Company as
a REIT; Opinion of Counsel
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its fiscal year ended December 31,
1994. The election to be taxed as a REIT will continue until it is revoked or
otherwise terminated. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that it will not be subject
to federal corporate income taxes on net income that is currently distributed to
its stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that typically results when a
corporation earns income and distributes that income to stockholders in the form
of a dividend. Accordingly, if the Company at any time fails to qualify as a
REIT, the Company will be taxed on its distributed income, thereby reducing the
amount of cash available for distribution to its stockholders.
In the opinion of Kutak Rock, counsel to the Company,
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commencing with the taxable year ended December 31, 1994, the Company has been
organized in conformity with the requirements for qualification as a REIT and
its proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. This
opinion is based on various assumptions and is conditioned upon the
representations of the Company as to factual matters. Moreover, continued
qualification and taxation as a REIT will depend on the Company's ability to
satisfy on a continuing basis certain distribution levels, diversity of stock
ownership and various income and asset limitations, including certain
limitations concerning the ownership of securities, imposed by the Code as
summarized below. While the Company intends to operate so that it will continue
to qualify as a REIT, given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in the circumstances of the Company, no assurance can be given by
counsel or the Company that the Company will so qualify for any particular year.
Kutak Rock will not review compliance with these tests on a continuing basis,
and will not undertake to update its opinion subsequent to the date hereof.
Taxation of the Company as a REIT
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal income tax on net income that is currently distributed to
its stockholders. The Company may, however, be subject to certain federal taxes
based on the amount of its distributions or its inability to meet certain REIT
qualification requirements. These taxes are the following:
Tax on Undistributed Income. First, if the Company does not distribute
all of its net taxable income, including any net capital gain, the Company would
be taxed at regular corporate rates on the undistributed income or gains. The
Company may elect to retain and pay tax on its capital gains.
Tax on Prohibited Transactions. Second, if the Company has net income
from certain prohibited transactions, including sales or dispositions of
property held primarily for sale to customers in the ordinary course of
business, such net income would be subject to a 100% confiscatory tax.
Tax on Failure to Meet Gross Income Requirements. Third, if the Company
should fail to meet either the 75% or 95% gross income test as described below
but still qualify for REIT status because, among other requirements, it was able
to show that such failure was due to reasonable cause, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount, if any, by which the Company failed either the 75% or the 95%
gross income test, multiplied by (b) a fraction intended to reflect the
Company's profitability.
Tax on Failure to Meet Distribution Requirements. Fourth,
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if the Company should fail to distribute during each calendar year at least the
sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT
capital gain net income for such year, and (c) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Alternative Minimum Tax. Fifth, the Company may be subject to
alternative minimum tax on certain items of tax preference.
Tax on Foreclosure Property. Sixth, if the Company has (a) net income
from the sale or other disposition of foreclosure property that is held
primarily for sale to customers in the ordinary course of business or (b) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income.
Tax on Built-in Gain. Seventh, if during the 10-year period (the
"Recognition Period") beginning on the date that the Company's corporate
predecessor merged with and into the Company, the Company recognizes gain on the
disposition of any asset acquired by the Company from the corporate predecessor,
then to the extent of the excess of (a) the fair market value of such asset as
of the beginning of such Recognition Period over (b) the Company's adjusted
basis in such asset as of the beginning of such Recognition Period, such gain
will be subject to tax at the highest regular corporate rate pursuant to IRS
regulations that have not yet been promulgated.
Overview of REIT Qualification Rules
The following summarizes the basic requirements for REIT status:
(a) The Company must be a corporation, trust or association
that is managed by one or more trustees or directors.
(b) The Company's stock or beneficial interests must be
transferable and held by more than 100 stockholders, and no more than
50% of the value of the Company's stock may be held, actually or
constructively, by five or fewer individuals (defined in the Code to
include certain entities).
(c) Generally, 75% (by value) of the Company's investments
must be in real estate, mortgages secured by real estate, cash or
government securities.
(d) The Company must meet three gross income tests:
(i) First, at least 75% of the gross income must be
derived from specific real estate sources;
(ii) Second, at least 95% of the gross income must be
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from the real estate sources includable in the 75% test, or
from dividends, interest or gains from the sale or disposition
of stock and securities; and
(iii) Third, for taxable years beginning on or before
August 5, 1997, less than 30% of the gross income may be
derived from the sale of real estate assets held for less than
four years, from the sale of certain "dealer" properties or
from the sale of stock or securities having a short-term
holding period.
(e) The Company must distribute to its stockholders in each
taxable year an amount at least equal to 95% of the Company's "REIT
taxable income" (which is generally equivalent to taxable ordinary
income and is defined below).
The discussion set forth below explains these REIT qualification
requirements in greater detail. It also addresses how these highly technical
rules may be expected to impact the Company in its operations, noting areas of
uncertainty that perhaps could lead to adverse consequences to the Company and
its stockholders.
Share Ownership. The Company's shares of stock are fully transferable
and are subject to transfer restrictions set forth in its Certificate of
Incorporation. Furthermore, the Company has more than 100 shareholders and its
Certificate of Incorporation, as a general matter, provides, to decrease the
possibility that the Company will ever be closely held, that no individual,
corporation or partnership is permitted to actually or constructively own more
than 9.8% of the number of outstanding shares of Common Stock. The Ownership
Limit may be adjusted, however, by the Company's Board of Directors in certain
circumstances. Purported transfers which would violate the Ownership Limit will
be void. In addition, shares of Common Stock acquired in excess of the Ownership
Limit may be redeemed by the Company. The ownership and transfer restrictions
pertaining generally to a particular issue of Preferred Stock will be described
in the Prospectus Supplement relating to such issue. In the case of a REIT which
solicits certain required information from its shareholders, the failure to
satisfy the closely held requirement described above will result in
disqualification only if the REIT had knowledge or upon the exercise of
reasonable diligence would have known of the failure to satisfy such
requirement.
Nature of Assets. On the last day of each calendar quarter, at least
75% of the value of the Company's total assets must consist of (a) real estate
assets (including interests in real property and mortgages on loans secured by
real property), (b) cash and cash items (including receivables), and (c)
government securities (collectively, the "real estate assets"). Except for
certain partnerships and "qualified REIT subsidiaries," as described below, the
securities of any issuer, other than the United States government, may not
represent more than 5% of the value of the Company's total assets or 10% of the
outstanding voting securities of any one issuer.
While, as noted above, a REIT cannot own more than 10% of the
outstanding voting securities of any single issuer, an exception to this rule
permits REITs to own "qualified REIT
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subsidiaries." A "qualified REIT subsidiary" is any corporation in which 100% of
its stock is owned by the REIT . The Company owns the stock or beneficial
interests of several entities which will be treated as "qualified REIT
subsidiaries" and will not adversely affect the Company's qualification as a
REIT.
The Company may acquire interests in partnerships that directly or
indirectly own and operate properties similar to those currently owned by the
Company. The Company, for purposes of satisfying its REIT asset and income
tests, will be treated as if it owns a proportionate share of each of the assets
of these partnerships attributable to such interests. For these purposes, the
Company's interest in each of the partnerships will be determined in accordance
with its capital interest in such partnership. The character of the various
assets in the hands of the partnership and the items of gross income of the
partnership will remain the same in the Company's hands for these purposes.
Accordingly, to the extent the partnership receives qualified real estate
rentals and holds real property, a proportionate share of such qualified income
and assets, based on the Company's capital interest in the partnerships, will be
treated as qualified rental income and real estate assets of the Company for
purposes of determining its REIT characterization. It is expected that
substantially all the properties of the partnerships will constitute real estate
assets and generate qualified rental income for these REIT qualification
purposes.
This treatment for partnerships is conditioned on the treatment of
these entities as partnerships for federal income tax purposes (as opposed to
associations taxable as corporations). If any of the partnerships were treated
as an association (or, in some cases, a publicly traded partnership), it would
be taxable as a corporation. In such situation, if the Company's ownership in
any of the partnerships exceeded 10% of the partnership's voting interests or
the value of such interest exceeded 5% of the value of the Company's assets, the
Company would cease to qualify as a REIT. Furthermore, in such a situation,
distributions from any of the partnerships to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described below and which could therefore make it more difficult for the
Company to qualify as a REIT for the taxable year in which such distribution was
received. In addition, in such a situation, the interest in any of the
partnerships held by the Company would not qualify as "real estate assets,"
which could make it more difficult for the Company to meet the 75% asset test
described above. Finally, in such a situation, the Company would not be able to
deduct its share of any losses generated by the partnerships in computing its
taxable income. The Company will take all steps reasonably necessary to ensure
that any partnership in which it acquires an interest will be treated for tax
purposes as a partnership (and not as an association taxable as a corporation).
However, there can be no assurance that the IRS may not successfully challenge
the tax status of any such partnership.
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Income Tests. To maintain its qualification as a REIT, the Company must
meet three gross income requirements that must be satisfied annually. First, at
least 75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities, from any
combination of the foregoing or from certain hedging agreements entered into to
reduce interest rate risks. Third, for taxable years commencing on or before
August 5, 1997, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the REIT's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company on the lease of its properties will
qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income test if the Company, or an owner
of 10% or more of the Company, actually or constructively owns 10% or more of
such tenant (a "Related-Party Tenant"). Third, if rent attributable to personal
property leased in connection with the lease of real property is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." The Company does not anticipate charging rent for any property that
is based in whole or in part on the income or profits of any person (other than
rent based on a fixed percentage or percentages of receipts or sales) and the
Company does not anticipate receiving any rents from Related-Party Tenants.
Furthermore, the Company expects that in substantially all cases the rents
attributable to its leased personal property will be less than 15% of the total
rent payable under such lease.
Finally, for rents to qualify as "rents from real property," the
Company must not operate or manage the property or furnish or render services to
tenants unless the Company furnishes or renders such services through an
independent contractor from whom the Company derives no revenue. The Company
need not utilize an independent contractor to the extent that services provided
by the Company are usually and customarily rendered in connection
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with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." If the amount received by the Company from
impermissible tenant services does not exceed 1% of the total amounts received
by the Company with respect to such related property, such rents will not as a
result be treated as nonqualifying income. Impermissible tenant services include
services rendered by the Company to tenants, other than the foregoing customary
services and services with regard to managing or operating the property. The
Company does not anticipate that it will provide any services with respect to
its properties.
The Company intends to monitor the percentage of nonqualifying income
and reduce the percentage of nonqualifying income if necessary. Because the
income tests are based on a percentage of total gross income, increases in
qualifying rents will reduce the percentage of nonqualifying income. In
addition, the Company intends to acquire additional real estate assets that
would generate qualifying income, thereby lowering the percentage of total
nonqualifying income. Increases in other nonqualifying income may similarly
affect these calculations. The Company does not expect to generate nonqualifying
income in quantities which would cause it to fail either at the foregoing 75% or
95% gross income tests.
If the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure to
meet such test was due to reasonable cause and not willful neglect and the
Company attaches a schedule of its income sources to its tax return that does
not fraudulently or intentionally exclude any income sources. As discussed
above, even if these relief provisions apply, a tax would be imposed with
respect to such excess income.
Annual Distribution Requirements. Each year, the Company must have a
deduction for dividends paid (determined under Section 561 of the Code) to its
stockholders in an amount equal to (a) 95% of the sum of (i) its "REIT taxable
income" as defined below (computed without a deduction for dividends paid and
excluding any net capital gain), (ii) any net income from foreclosure property
less the tax on such income, minus (b) any "excess noncash income," as defined
below. "REIT taxable income" is the taxable income of a REIT subject to certain
adjustments, including, without limitation, an exclusion for net income from
foreclosure property, a deduction for the excise tax on the greater of the
amount by which the REIT fails the 75% or the 95% income test, and an exclusion
for an amount equal to any net income derived from prohibited transactions.
"Excess noncash income" means the excess of certain amounts that the REIT is
required to recognize as income in advance of receiving cash, such as original
issue discount on purchase money debt, over 5% of the REIT taxable income before
deduction for dividends paid and excluding any net capital gain. Such
distributions must be made in the taxable year to which they relate, or in the
following taxable year if declared before the REIT timely files its tax return
for such year and is paid on or before the first regular dividend payment after
such declaration.
It is possible that the Company, from time to time, may not
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have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between (a) the actual receipt of income
and the actual payment of deductible expenses and (b) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company. Furthermore, principal payments on Company indebtedness, which would
have the effect of lowering the amount of distributable cash without an
offsetting deduction to Company taxable income, may adversely affect the
Company's ability to meet this distribution requirement. In the event that such
timing differences or reduction to distributable cash occurs, in order to meet
the 95% distribution requirement, the Company may find it necessary to arrange
for short-term, or possible long-term, borrowings or to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year that may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay to the IRS interest based on the amount of
any deduction taken for deficiency dividends.
Congress is currently considering several proposals which, if adopted,
would modify the requirements applicable to REITs. Among such requirements is
one which would preclude a REIT from owning more than 10% of the value of the
stock of any subsidiary, other than a qualified REIT subsidiary. An additional
proposal would prohibit an existing corporation from deferring built-in gains
upon filing an election to be treated as a REIT. If an entity's election to be
treated as a REIT were terminated, such provision, if enacted, would make
requalification as a REIT substantially more difficult. It is not possible to
predict which, if any, of the current proposals will be enacted or the effect of
such proposals on the Company.
Failure of the Company to Qualify as a REIT
If the Company fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company would be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, thereby reducing the amount of cash available for
distribution to its stockholders. Distributions to stockholders in any year in
which the Company fails to qualify would not be deductible by the Company nor
would they be required to be made. In such an event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders would be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory relief provisions, the
Company would also be disqualified from taxation as a REIT for the four taxable
years following the year during which such qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief.
State and Local Taxes
The Company may be subject to state or local taxes in other
jurisdictions such as those in which the Company may be deemed to be engaged in
activities or own property or other interests. Such tax treatment of the Company
in states having taxing
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jurisdiction over it may differ from the federal income tax treatment described
in this summary. Each stockholder should consult his or her tax advisor as to
the status of the Company and the Securities under the respective state laws
applicable to them.
PLAN OF DISTRIBUTION
The terms of any offering of Securities under this Registration
Statement will be set forth in the applicable Prospectus Supplement. The Company
may sell the Securities to one or more underwriters for public offering and sale
by them or may sell the Securities to investors directly or through agents or
dealers. Any such underwriter or agent involved in the offer and sale of the
Securities will be named in the applicable Prospectus Supplement .
Underwriters may offer and sell the Securities at a fixed price or
prices, which may be changed, at market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices. The
Company also may, from time to time, authorize dealers acting as the Company's
agents to offer and sell the Securities upon the terms and conditions as are set
forth in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may receive compensation from the Company in the form
of underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent. Any underwriting
compensation paid by the Company to underwriters or agents in connection with
the offering of Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable Prospectus Supplement. Dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions.
Underwriters, dealers and agents may be entitled, under agreements
entered into with the Company, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
Certain of the underwriters, dealers and agents and their affiliates
may be customers of, engage in transactions with and perform services for the
Company and its subsidiaries in the ordinary course of business.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock. The Common Stock is currently listed on the NYSE.
Unless otherwise
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specified in the related Prospectus Supplement, any shares of Common Stock sold
pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of Debt
Securities or Preferred Stock on the NYSE or other exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, there can
be no assurance as to the liquidity of, or the trading market for, the
Securities.
If so indicated in the Prospectus Supplement, the Company will
authorize agents and underwriters or dealers to solicit offers by certain
purchasers to purchase Securities from the Company at the public offering price
set forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such offers.
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LEGAL MATTERS
Certain legal matters relating to the Securities to be offered hereby,
and certain REIT matters relating to the Company, will be passed upon for the
Company by the national law firm of Kutak Rock, 717 Seventeenth Street, Suite
2900, Denver, Colorado
80202.
EXPERTS
The financial statements and schedules for the fiscal year ended
December 31, 1997 incorporated by reference in this Prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report, with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
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No dealer, salesperson or other individual has been authorized to give
any information or to make any representation s other than contained or
incorporated by reference in this Prospectus Supplement, the applicable Pricing
Supplement or the Prospectus in connection with the offer made by this
Prospectus Supplement, the applicable Pricing Supplement and the Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Agents. Neither the delivery of
this Prospectus Supplement, the applicable Pricing Supplement and the Prospectus
nor any sa le made hereunder and thereunder shall under any circumstance create
an implication that there has not been any change in the affairs of the Company
since the date hereof. This Prospectus Supplement, the applicable Pricing
Supplement and the Prospectus do not constitute an offer or solicitation by
anyone in any state i n which such offer or solicitation is not authorized or in
which t he person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
Prospectus Supplement
RISK FACTORS.................................................................S-3
THE COMPANY..................................................................S-4
DESCRIPTION OF NOTES.........................................................S-4
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS.................................................S-29
PLAN OF DISTRIBUTION........................................................S-38
LEGAL MATTERS...............................................................S-40
Prospectus
AVAILABLE INFORMATION........................................................ 3
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.............................................. 3
THE COMPANY.................................................................. 5
USE OF PROCEEDS.............................................................. 5
RATIOS OF EARNINGS TO FIXED
CHARGES............................................................. 5
DESCRIPTION OF DEBT SECURITIES............................................... 6
DESCRIPTION OF COMMON STOCK.................................................. 20
DESCRIPTION OF PREFERRED STOCK............................................... 21
RESTRICTIONS ON TRANSFERS OF
CAPITAL STOCK....................................................... 28
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS...................................................... 29
PLAN OF DISTRIBUTION......................................................... 36
LEGAL MATTERS................................................................ 38
EXPERTS .................................................................... 38
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FFCA
$400,000,000
FRANCHISE FINANCE
CORPORATION OF AMERICA
Medium-Term Notes
Due Nine Months or More
From Date of Issue
----------
PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Securities Corporation
NationsBanc Montgomery Securities LLC
Salomon Smith Barney
UBS Securities
April 16, 1998
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